Alex Tabarrok

Does Donald Trump want to streamline the FDA and speed new drugs to patients? The Washington Post thinks that it can read the tea leaves:

A single sentence in President-elect Donald Trump’s health-care platform sends a strong hint to the drug and medical device industry that they may have an easier time getting their products on the market under his administration.

“Reform the Food and Drug Administration, to put greater focus on the need of patients for new and innovative medical products,” his health plan states.

On the face of it, the bullet point may seem almost bland, but efforts to integrate patients’ preferences and encourage innovation often result in proposals aimed at speeding up the process for getting new medicines on the market by easing regulations. Critics argue that such efforts can erode standards that are in place to protect patients from drugs that don’t work and might even be harmful.

“The language … is industry code for deregulation and reducing of safety standards,” said Robert Weissman, president of Public Citizen, a consumer watchdog.

There is plenty of evidence that the FDA is too slow (see, for example, here, here, here and here) so I would support such a move. Senators Cruz and Lee proposed a reciprocity bill last term under which drugs approved in other developed countries would quickly be approved here; perhaps such a bill could find renewed interest in a Trump administration (Economists also support the idea of reciprocity.)

On the other hand, Trump has expressed support for Medicare being allowed to negotiate drug prices which is tantamount to price controls given the size of Medicare and that is potentially a disaster. Price controls could significantly reduce research and development in the pharmaceutical industry and end up greatly adding to the invisible graveyard. Trump’s advisers would seem to lean towards streamlining the FDA process rather than imposing price controls but it’s difficult to be certain.

In this post I put aside the negatives of a Trump presidency and focus on some of the positive things that President Trump could do that are still consistent with his stated goals and ideology.

First, and most obviously, infrastructure development. Trump has said he wants to invest a trillion dollars in infrastructure, mostly through public-private partnerships (PPP). As I said in Launching the Innovation Renaissance we need more and better airports, for example. Ironically, New York Governor Andrew Cuomo’s $4 billion PPP to replace LaGuardia’s Terminal B which has as a leading partner Swedish multinational Skansa, is an important model. Around the world there are a number of other successful examples of airport PPPs including in India, Australia, New Zealand, Canada and South Africa.

Fortunately, the FAA already has an airport privatization program. To date, the program has had only limited success but the tools are in place if Trump wants to push.

Governments eager for cash sometimes structure PPPs with big up front payments and low future payments. Trump could find such a bargain tempting as it would let him raise cash and encourage building today while pushing low future revenues decades into the future. Bear in mind, however, that when someone such as Paul Krugman says that now is the time to invest because interest rates are low, a corollary is that is now is the time to sell because asset prices are high.

Speaking of air travel, Trump seems like just the person to Make America Boom Again and he could do it with a small directive to the FAA to drop the ban on supersonic aircraft and replace it with a reasonable noise standard.

We also desperately need an update to our electricity grid. We have more blackouts than any other developed nation. It is a national embarrassment when millions of US residents our thrown into the dark by grid failures.

Improving the grid is not just an economic issue it’s an issue of national security. Our grid is under constant low-level attack, and some of these attacks are likely probes for an attack similar to that which brought down the Ukrainian power grid.

Electricity infrastructure, it’s worth noting, is less amenable to PPPs than airports because it’s more difficult to monetize quality improvements and the grid by its nature involves many externalities so I think Trump is relying too much on PPPs. Newt Gingrich, however, is a big proponent of improving the grid and he may help convince Trump to invest public funds.

An important byproduct of improving our electricity grid would be to improve the prospects for solar and wind power. Solar and wind are intermittent and cost effective in only some parts of the country. The better our transmission lines, however, the more useful these sources of energy become. Indeed, it might be time to begin work on a global super-grid. I could see Trump going for this (just don’t call it a hemispheric open market).

Trump also seems like just the guy to support nuclear energy. Molten salt reactors are very safe and can be much smaller than traditional reactors. These types of reactors were invented in the United States but China is rapidly developing the technology. President Trump don’t let China drink our milkshake! By the way, these types of nuclear reactors pair well with renewables because they can ramp up or down to fill in the intermittent nature of  solar and wind. Nuclear power also pairs beautifully with hydrogen.

The first new nuclear plant in decades just started producing power for commercial use last month. Trump should cut the ribbon at an opening ceremony. It would be a great signal that America is not afraid of technology, that we can still build, and that we can responsibly deal with climate change while increasing the power that drives American civilization.

Devangshu Datta has a good run down of the basic facts of India’s demonetization of Rs 500 and Rs 1,000 notes:

About 85% of all currency in circulation has just been turned into coupons that can only be exchanged in specific places. These notes can be converted into currency again only with identity proofs (which hundreds of millions don’t have) and the additional hardship of standing in many queues for many hours.

Over half of India’s population doesn’t have any sort of bank account at the moment and about 300 million don’t have basic ID such as Aadhaar either and hence, cannot access the banking system at all. About 130 million Indians have mobile wallets (about 25 million have credit cards) and there are maybe 550-600 million debit cards in circulation. So access to cash is very, very important for average Indians.

…India is a cash economy. Well over 90% of all transactions are done in cash.

So how is India responding? Lineups at banks and ATMs are long. Tourists at the Taj Mahal have had minor troubles because ticket collectors aren’t accepting the demonetized notes. Demand for gold is up giving some jewelers a temporary albeit welcome windfall. Perhaps most telling is that at Zaveri Bazaar in Mumbai old notes were going at a 60% discount–that is a very heavy discount and indicates that the demonetization is, as I argued earlier, working as a tax on the black market. Other sources, however, indicate that discounts can be had for as low as 20%. Discounting, however, is illegal and the government is cracking down.

What, however, is the point? As Amit Varma argues:

…most truly rich people don’t keep their wealth in the form of cash, but in the form of real estate, gold, deposits in foreign bank accounts and other benaami investments. They will be largely unhurt…it is the poor who will be hurt the most by this.

And Ajay Shah notes:

Controlling corruption is not about blocking access to a non-traceable store of value. There will always be precious metals, US dollars, bitcoin, and jars of Tide…. Solving the problem of corruption requires deeper changes to institutions.

I see this as the main point of the exercise (quoting Datta):

The Income Tax and Excise Departments’ ability to gather data will increase exponentially. So will their discretionary powers, when they can query people who pay large sums in cash into their accounts.

That is not necessarily a bad thing. A key point is that only 1% of India’s population pays income tax–India would be a libertarian paradise if it had a libertarian government but it doesn’t. As a result, what low income tax payments mean is that India is forced to raise money in less efficient ways and to govern through regulation. Some of the only people who pay tax, for example, are those working in large multinational corporations but those are precisely the high-productivity sectors that need to grow.

India’s dilemma is that its high productivity sectors are taxed while its low-productivity sectors aren’t, so valuable resources are trapped in low productivity sectors. Modi knows this and if he is serious then his surprise demonetization will be followed by more efforts to bring India’s informal sector into the formal sector, leveling the playing field, and increasing total wealth.

AddendumMostly Economics has a discussion of two early demonetization in India, one in 1946 and one in 1978, both were focused on the larger bills unlike the current demonetization.

Fixing Vote Fraud

by on November 10, 2016 at 12:13 pm in Current Affairs | Permalink

The line between satire and forecast is razor thin.

Sentences of the Day

by on November 10, 2016 at 11:59 am in Current Affairs, Data Source | Permalink

538: Economic anxiety is about the future, not just the present. Trump beat Clinton in counties where more jobs are at risk because of technology or globalization. Specifically, counties with the most “routine” jobs — those in manufacturing, sales, clerical work and related occupations that are easier to automate or send offshore — were far more likely to vote for Trump.

TheEconomicTimes: In a move to curb the black money menace, PM Narendra Modi declared that from midnight currency notes of Rs 1000 and Rs 500 denomination will not be legal tender.

In his 40-minute address, first in Hindi and later in English, the Prime Minister said the notes of Rs 500 and Rs 1000 “will not be legal tender from midnight tonight” and these will be “just worthless piece of paper.”

This is a big deal as these notes account for at least 80% of all cash in circulation! Ken Rogoff has argued for eliminating cash but this doesn’t seem to be a move in that direction since the notes will be replaced with new Rs 500 and Rs 2000 notes. Rather it seems to be a wealth tax on the black market. Old notes can be turned into a bank for replacement so ordinary people won’t lose money. People in the black market, however, probably have a lot of cash that they are unwilling to turn into a bank because they don’t want to reveal their wealth. Imagine walking into a bank and depositing a million dollars in cash–that is going to create a record that the tax authorities can follow. The wealth tax on the black market interpretation is consistent with the surprise–if people knew that this was coming they could have laundered the money but that is going to be more difficult and costly now.

It’s impressive that a government could pull off this level of secrecy. Good for Modi’s image as competent, uncorrupt and technocratic. Indians are calling it a “surgical strike on black money” which is the imagery Modi wants. But what will happen tomorrow when people don’t have enough cash to buy goods and services?

And there is another issue. Why is the black market so large to begin with? The wealth tax will punish current holders of cash but if the policies that generate the black market aren’t addressed the black market will grow again perhaps using gold, USD or bitcoin (see my addendum). It would be better to reduce barriers to entry and encourage more economic activity to move out of the black market and into the formal sector.

Hat tip on twitter to Evan Soltas and Kevin Grier for some discussion.

Addendum: Bitcoin up today.

Voting Paradoxes

by on November 4, 2016 at 7:25 am in Philosophy, Political Science | Permalink

Here’s an excellent video on voting paradoxes from the San Francisco Exploratorium and here is my older post on Arrow’s Impossibility Theorem.

VotingParadoxes from Paul stepahin on Vimeo.

The FDA is Also Slow at Hiring

by on November 3, 2016 at 11:30 am in Economics, Medicine | Permalink

One of the reason’s the FDA is too slow to approve new drugs is that as a branch of the Federal government they are tied to slow and inefficient hiring rules.

The Food and Drug Administration has more than 700 job vacancies in its division that approves new drugs, and top officials say the agency is struggling to hire and retain staff because pharmaceutical companies lure them away.

“They can pay them roughly twice as much as we can,” Janet Woodcock, who directs the FDA’s Center for Drug Evaluation and Research (CDER), said at a rare-diseases summit recently in Arlington, Va.

High-value, potentially life-saving drugs are being delayed because the FDA is constrained from paying market rates. Absurd. Moreover, it’s not just about the wage rate.

[Janet] Woodcock [Director of FDA’s Center for Drug Evaluation and Research] wrote in December that staffing was a priority in 2016 because the center had “more than 600 staff vacancies.” At the Arlington event, she called the federal hiring system “challenging,” adding that prospective candidates often take other jobs while waiting for the FDA to make an offer.

“We move rather slowly — like a snail might be a better analogy,” agreed Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research. “A young person with a family can’t wait four months for us to get through some of the federal hiring process. So if they have something else that’s more . . . expedient, they will take that.”

Sadly, slow and bureaucratic describes not just the hiring process but the drug approval process. The only difference is that patients don’t have an option to take the expedient alternative.

I am amazed that the latest New Yorker contains a fair, knowledgeable and informative review-essay of Jason Brennan’s Against Democracy, Ilya Somin’s Democracy and Political Ignorance, and Bryan Caplan’s The Myth of the Rational Voter. The author, Caleb Crain, has done his homework and he engages seriously with the literature. Here is one bit but read the whole thing both for what it says and what its publication in the New Yorker says about our times.

Brennan has a bright, pugilistic style, and he takes a sportsman’s pleasure in upsetting pieties and demolishing weak logic. Voting rights may happen to signify human dignity to us, he writes, but corpse-eating once signified respect for the dead among the Fore tribe of Papua New Guinea. To him, our faith in the ennobling power of political debate is no more well grounded than the supposition that college fraternities build character.

Odd Pricing Strategies

by on October 31, 2016 at 2:24 pm in Economics | Permalink

In an earlier post, I explained how a choose what you pay strategy could increase profits. Choose what you pay strategies have mostly been used by charities and artists, however (especially when the product has low marginal cost). I have difficulty understanding how a choose what you pay strategy makes sense for a shoe company–but here you go. You can pay any of three prices and there is no difference in sizing or color by price. True, I have just given them some free advertising but I doubt that explains much. It would be interesting to know how many people choose a higher price. Is it an IQ test? An EQ test? A reading test?

Hat tip: Monique van Hoek.

The NYTimes has an excellent feature on genetically modified crops, written by Danny Hakim joined by Karl Russell on data. The usual story is about a battle between fears of contamination on one side and the potential of increased yields on the other but the Times story is about how genetically modified crops have failed to increase yields or reduce pesticide use. This has been discussed in the scientific literature for a few years (e.g. here) and Tom Philpott at Mother Jones has covered the story earlier but the Times story really brings it home in a dramatic way. The graphics are especially good.

Here’s one graph showing corn crop yields in the United States, which uses GMOs, and Western Europe which does not. See the difference?gmo-crops

Addendum: Some good further discussion here, h/t ant1900 in the comments.

Quote of the Day

by on October 29, 2016 at 11:26 am in Current Affairs, Political Science | Permalink

Mencken of course:

I enjoy democracy immensely. It is incomparably idiotic, and hence incomparably amusing. Does it exalt dunderheads, cowards, trimmers, frauds, cads? Then the pain of seeing them go up is balanced and obliterated by the joy of seeing them come down. Is it inordinately wasteful, extravagant, dishonest? Then so is every other form of government: all alike are enemies to laborious and virtuous men. Is rascality at the very heart of it? Well, we have borne that rascality since 1776, and continue to survive. In the long run, it may turn out that rascality is necessary to human government, and even to civilization itself – that civilization, at bottom, is nothing but a colossal swindle. I do not know: I report only that when the suckers are running well the spectacle is infinitely exhilarating. But I am, it may be, a somewhat malicious man: my sympathies, when it comes to suckers, tend to be coy. What I can’t make out is how any man can believe in democracy who feels for and with them, and is pained when they are debauched and made a show of.

What could go wrong?

by on October 28, 2016 at 11:11 am in Current Affairs, Web/Tech | Permalink

ARS Technica: Google Brain has created two artificial intelligences that evolved their own cryptographic algorithm to protect their messages from a third AI, which was trying to evolve its own method to crack the AI-generated crypto. The study was a success: the first two AIs learnt how to communicate securely from scratch.

Hat tip: Eli Dourado.

WashPost: A hotel executive said a recently-passed New York law cracking down on Airbnb hosts will enable the company to raise prices for New York City hotel rooms, according to the transcript of the executive’s words on a call with shareholders last week.

In the latest video from our Principles of Macroeconomics course at MRUniversity we look at a question that has come up in this election, Is the unemployment rate undercounted?