Law

Innovation Breakdown

by on August 12, 2014 at 7:47 am in Economics, Law, Medicine, Uncategorized | Permalink

From my review today in the WSJ of Innovation Breakdown by Joseph Gulfo:

Yo is a smartphone app. MelaFind is a medical device. Yo sends one meaningless message: “Yo!” MelaFind tells you: “biopsy this and don’t biopsy that.” MelaFind saves lives. Yo does not. Guess which firm found it easier to put their product in consumers hands? Oy.

In “Innovation Breakdown: How the FDA and Wall Street Cripple Medical Advances,” Joseph Gulfo tells the tumultuous history of MELA Sciences, the company that invented MelaFind. When Dr. Gulfo joined the firm as president and CEO in 2004, the company’s brilliant team of scientists had spent many years and tens of millions of dollars to develop MelaFind, a “camera with a brain”—optical technology that would scan potential melanomas in multiple spectra and then, using sophisticated algorithms and large datasets, diagnose which were most likely to be cancerous.

MELA Sciences conducts an extensive clinical trial according to a protocol agreed on by the FDA and all looks good. After the clinical trial is completed, however, the FDA backs away from the protocol and comes out against MelaFind.

…The title of Dr. Gulfo’s book is “Innovation Breakdown” but “Innovator’s Breakdown” might have been more apt. The letter sent the author into survival mode. He battled the FDA, calmed investors, and defended against the lawsuit all while trying to keep the company afloat. Under stress, Dr. Gulfo’s health began to decline: He lost 29 pounds, his hair began to fall out, and the pain in his gut became so intense he needed an endoscopy. When his wife begged him to quit, he refused. They turned into roommates. “We were nothing more than cordial. I basically shut my wife out of my life,” he writes.

…The climax to this medical thriller comes when, in “the greatest 15 minutes of [his] life,” Dr. Gulfo delivers an impassioned speech, à la “Twelve Angry Men,” to the FDA’s advisory committee. The committee voted for approval, 8 to 7, and, perhaps with the congressional hearing in mind, the FDA approved MelaFind in September 2011.

It was a major triumph for the company, but Dr. Gulfo was beat. He retired from the company in June 2013—just in time to save his marriage.

Yet remarkably, given his experience, Mr. Gulfo writes that he still believes in a strong FDA. He argues in the book that better “leadership” and a few tweaks to existing rules can fix the problem. He’s wrong.

Compare MelaFind’s experience in the U.S. with its reception in Europe: MelaFind was submitted for marketing approval in Europe in May 2011. It was approved just five months later. One key reason for Europe’s efficient approval process is that European governments don’t review medical devices directly. Instead they certify independent “notified bodies” that specialize and compete to review new products. The European system works more quickly than the U.S. system, and there is no evidence that it results in reduced patient safety. Rather than tweak the current system, why doesn’t the U.S. just adopt the European model and call it a day? Our health and our economy would be better off for it.

Google’s Sergey Brin recently said that he didn’t want to be a health entrepreneur because “It’s just a painful business to be in . . . the regulatory burden in the U.S. is so high that I think it would dissuade a lot of entrepreneurs.” Mr. Brin won’t find anything in Dr. Gulfo’s book to persuade him otherwise. Until we get our regulatory system in order, expect a lot more Yo’s and not enough life-saving innovations.

Assaf Zimring writes to me:

Since we tend to associate high unemployment with any economic calamity, people don’t seem to think a lot about why we see very high unemployment in Gaza. But I am puzzled by it. How come an economy with such tremendous shortages fails to employ 40% of its workers in an attempt to meet these shortages?

Has the (by now, fairly loose) blockade pushed the MPL to zero for 40% of workers? Is it uncertainty that stops investment? Did large aid payments (in some years – 50% of GDP) cause some kind of a Dutch disease of an epic scale (though I am not sure that would lead to unemployment)? I wonder if you have any thoughts about that.

At the first link you will find some interesting papers by Assaf on the Gaza blockade and other Gaza shocks.  One option of course is simply that hardly anyone is really employed, although there is massive underemployment in grey and black market economies, including for the digging of tunnels and subsistence agriculture.

He writes:

…the cost of bureaucracy is in general vastly overestimated. Compensation of workers accounts for only around 6 percent of non defense federal spending, and only a fraction of that compensation goes to people you could reasonably call bureaucrats.

And what Konczal says about welfare is also true, although harder to quantify, for regulation. For sure there are wasteful and unnecessary government regulations — but not nearly as many as libertarians want to believe. When, for example, meddling bureaucrats tell you what you can and can’t have in your dishwashing detergent, it turns out that there’s a very good reason. America in 2014 is not India under the License Raj.

In other words, libertarianism is a crusade against problems we don’t have, or at least not to the extent the libertarians want to imagine.

And:

And what all this means in turn is that libertarianism does not offer a workable policy agenda. I don’t mean that I dislike the agenda, which is a separate issue; I mean that if we should somehow end up with libertarian government, it would quickly find itself unable to fulfill any of its promises.

You can read his further points here.  In fact I agree with many of Krugman’s observations in what I thought was overall a useful post.  It’s just that I think a lot of other viewpoints are living in a fantasy world too.

That said, Krugman grossly underestimates the costs of government regulation.  For one thing, government regulations are a major obstacle to the infrastructure improvements which Krugman is so keen on.  To use Krugman’s own pick of the cherry, he wrote another post defending the DMV for its on-line service and reasonable wait times.  It was not always so, but on top of that let’s not forget the Virginia DMV just tried to put Uber and other ride-sharing services out of business (Krugman himself wrote rapturously about Uber a few weeks ago and how it held out the promise of a society with diminished car ownership in some locales.  I say bring it on.)  Fortunately the regulators were temporarily overriden in this case, although they may reemerge as an obstacle in a subsequent bargain.  More generally, taxi license and medallion requirements are a disgrace in many places, and who is in charge of that?  Typically the DMV.

You might also ask whether DMVs underregulate where they ought to regulate more.  The number of road deaths in the United States each year is so high as to be scandalous.  I am not sure how much this problem can be pinned on the DMV (how easy is it to get very bad drivers off the road through legal/constitutional means?), but still it is hard to argue that in absolute terms these agencies are overseeing a successful regime of road safety.

The more than 6,000 animals in Russia’s largest zoo have been caught up in the worst fight between Russia and the West since the Cold War. A wide-ranging ban on Western food announced this week by the Kremlin has forced a sudden diet change for creatures that eat newly forbidden fruit.

The sanctions against meat, fish, fruits and vegetables from the United States, the European Union and other Western countries were intended to strike a counterblow to nations that have hit Russia over its role in Ukraine’s roiling insurgency. But the measures will also have an impact on stomachs at the zoo.

The sea lions crack open Norwegian shellfish. The cranes peck at Latvian herring. The orangutans snack on Dutch bell peppers. Now the venerable Moscow Zoo needs to find politically acceptable substitutes to satisfy finicky animal palates.

“They don’t like Russian food,” zoo spokeswoman Anna Kachurovskaya said. “They’re extremely attached to what they like, so it’s a hard question for us.

The penguins still live in a Cobdenite world:

The penguins eat fish from Argentina — whose food sales to Russia have not been blocked and are politically in the clear.

But the Ramsey rules are relevant for some of the primates:

Orangutans, gorillas and monkeys are particularly finicky eaters at the zoo, but Kachurovskaya said they would eventually adapt.

“In the wild, they eat what they have, not what they want,” she said.

The story is here.

This time Newport Beach, CA is the villain, or the guardian of public safety, depending on your point of view:

While demand for such thrill rides seems limitless, the supply has been curtailed by the Newport Beach City Council. Alarmed by noise complaints and safety concerns, the council approved a six-month moratorium on new jetpack businesses this summer, dashing the hopes of several would-be operators. The move has left Jetpack America as the only oceanfront flight school in town for now, cornering the market on what some see as an ever-expanding audience, thanks in large part to video clips posted online and Internet deals that lure new customers to the shores of Newport Beach, an idyllic setting less than 50 miles southeast of Los Angeles.

The devices cost $10k (formerly 100k), they push you 40 feet up, and you can go 30 mph.  You can still do it in New Jersey, Delaware, and Florida, though further regulations are coming.  How is this for a good sentence?:

The jetpack universe is small, but growing.

The full story is here, by Jennifer Medina, interesting throughout.

If a captive soldier is known to be in a certain vehicle, Mr. Amidror said, it is permissible to fire a tank shell toward the engine of the car. “You for sure risk the life of the soldier, but you don’t intend to kill him,” he said.

Asked whether it was morally acceptable to risk a soldier’s life in this way, Mr. Amidror said: “You know, war is very controversial. Soldiers have to know there are many risks in the battlefield, and this is one of them.”

That is for Israeli soldiers and it is called the Hannibal Procedure more generally.  The subtext is that an Israeli soldier captured by the enemy can end up being traded for a thousand or more imprisoned Palestinians.  The persistence of the kidnapped state for the soldier may create an intolerable situation for the Israeli public, more than would seem to be the case for a deceased soldier, and arguably it damages morale for future soldiers to a greater extent.

Not everyone likes the Hannibal Procedure:

“The procedure is morally flawed,” said Emanuel Gross of Haifa University, an expert in military law and a former military judge. “We have no right to risk the life of a soldier only to avoid the payment for his return from captivity.”

Instead, Mr. Gross said, Israel ought to stand more firmly against the inflated demands of the captors.

I wonder how the opinion of the median soldier or soldier-to-be on this policy compares to the opinion of the median Israeli citizen.  Our philosopher readers will also note the connection of this debate to the longstanding conundrums over whether a person ceasing to exist can be said to harm that person, a topic discussed by Derek Parfit among others.

The full story is here, interesting throughout.

Putin’s Plan A: Long game, squeeze Ukraine, force deep federation, formalize Russian influence & primacy in SE

Plan B: Invade

The link to that tweet is here.  There is more from Ian here.

I find it worrying that Putin is suspending food imports from parts of the West.  (Note that the text of the ban may be deliberately ambiguous.)  Commentators are criticizing the economics of such a move, but I think of this more in terms of Bayesian inference.  Long-term elasticities are greater than short.  Under the more pessimistic reading of the action, Putin is signaling to the Russian economy that it needs to get used to some fairly serious conditions of siege, and food is of course the most important of all commodities.  Why initiate such a move now if you are expecting decades of peace and harmony?  Or is Putin instead trying to signal to the outside world that he is signaling “siege” to his own economy?  Then it may all just be part of a larger bluff.  In any case, Eastern Europeans do not take food supply for granted.

Network-attached storage devices made by Synology are being attacked, and their data encrypted, by ransomware that demands $350 in bitcoins (payable anonymously via Tor) for the decryption key. As of this moment, there’s no patch.

There is more here, via Craig Fratrik.

In Defense of Johns

by on August 7, 2014 at 2:58 am in Economics, Law, Medicine | Permalink

Jim Norton writing in Time:

…When I first began soliciting sex for money, it never occurred to me that some of them are possibly forced into prostitution or have abusive pimps. I must have known it deep down on an intellectual level, but hadn’t witnessed anything to confirm it.

Until I did.

The only experience I’ve had with an element of violence being present was driving on 48th Street in New York once and talking to a girl through my passenger window….As we were speaking, a van full of girls stopped and a guy who I assume was her pimp, bounced her across the hood of my car and threw her in the van.

This is why I’m a firm believer that prostitution should be legalized and pimps should be thrown down an elevator shaft.

Law enforcement stings designed to shame men who pay for sex are nothing more than the state blowing its own morality horn. Being a comedian who is single allows me a luxury most johns don’t have, which is the freedom to discuss the topic openly. And not from a ‘case study’ point of view, but from the honest point of view of someone who has spent the equivalent of a Harvard Law School education on purchasing sex.

By keeping prostitution illegal because we find it “morally objectionable,” we allow (or, more accurately, you allow) sex workers to constantly be put into dangerous situations. Studies have shown that rapes and STDs dropped drastically between 2003 and 2009 in Rhode Island after the state accidentally legalized it. The American Journal of Epidemiology showed that the homicide rate for prostitutes is 50 times higher than the next most dangerous job for a woman, working in a liquor store. You don’t need a Masters in sociology to understand it would be much safer for sex workers if they were permitted to work in places that provided adequate security. Legalizing prostitution would also alleviate the fear a sex worker may have about reporting the abusive behavior of a john out of fear of arrest.

…Give sex workers rights. Give johns a break.

Bernie Ecclestone, is to make a $100m (£60m) payment to end his trial on bribery charges, a district court in Munich has confirmed.

Ecclestone, 83, went on trial in Munich in April over allegations that he bribed a former German banker as part of the sale of a major stake in the motorsport business eight years ago.

German law provides for some criminal cases to be settled with smaller punishments, such as fines, though the size of the payment in Ecclestone’s case has led some to question a system that effectively favours wealthy defendants.

The Munich court said in a statement that $99m would be paid to the German treasury and a further $1m to a German children’s hospice charity. The money will be paid within a week, after which time the trial will officially be abandoned.

The full story is here, not quite China punishment of the day.

For the pointer I thank Dan Jackson.

That campaign is one of the more notable events going on in a busy and event-rich world, so it feels remiss not to cover it at all.  Here is John Minnich:

The anti-corruption campaign is one of those steps. It serves many overlapping functions: to clear out potential opponents, ideological or otherwise; to consolidate executive power and reduce bureaucratic red tape so as to ease the implementation of reform; to remind the Chinese people that the Communist Party has their best interests at heart; and to make it easier to make tough decisions.

Underlying and encompassing these, we see the specter of something else. The consensus-based model of politics that Deng built in order to regularize decision-making and bolster political stability during times of high growth and that effectively guided China throughout the post-Deng era is breaking down. It can no longer hold in the face of China’s transformation and the crises this will bring. Simply put, now that its post-1978 contract with Chinese society — a social contract grounded in the exchange of growth for stability — is up, the Party risks losing the public support and political legitimacy that this contract undergirded. A new and more adaptive but potentially much less stable model is being erected, or resurrected, from within the old. This model is grounded more firmly in the personality and prestige of the president and more capable, or so Chinese leaders seem to hope, of harnessing and managing the Chinese nation through what could well be a period of turmoil.

This does not necessarily mean a return to Imperial China, nor does it mean a return to the days and methods of the Great Helmsman, Mao. It doesn’t even mean the new model will succeed, even remotely. What it means will be decided only by the specific interplay of structure and contingency in the unfolding of history. But it is this transformation that serves as the fundamental, if latent, purpose for Xi’s anti-corruption campaign.

The full piece is here, and for the pointer I thank Jim Olds.  “Be careful what kind of anti-corruption campaign you wish for…”

Drivers caught using high beams inappropriately will now be offered on-the-spot training about the dangers of such practices, according to a posting on the Shenzhen Traffic Police’s verified account with Weibo.

Specifically, headlight-happy drivers will be forced to stare straight ahead into the glaring headlights of a police van for a period of several minutes.

“You still dare to use your headlights carelessly?” the Traffic Police posting asks. “If so, then starting from now we’ll make you stare at our high beams for five minutes.”

There is also a 300 yuan ($49) fine.  The policy is popular in some quarters:

Still, most people reacted positively to the Shenzhen Traffic Police’s approach.

“An eye for an eye, and a tooth for a tooth! This punishment should be popularized. When can it be used to deal with red-light running or hit-and-run?” wrote another.

More people in The Middle Kingdom need to read Gary Becker.  The full story is here.

Monopsony and its drawbacks

by on August 3, 2014 at 1:45 am in Current Affairs, Law | Permalink

The Bully Fire, which has burned more than 12,600 acres in Shasta County, is nearly contained. In the two weeks since it ignited, about 2,000 firefighters have battled the blaze. Nearly half of them — 900 — are inmates with the California Department of Corrections. These “low-level offenders” making just $2 a day are a crucial component in how the state battles wildfires.

Yet there is some extra compensation:

Once they’re in the program they never spend a night in a prison facility.

Nonetheless:

A few other men say they might try firefighting when they’re released, but most, citing the hot, hard work and long hours, say, “No way.”

There is more here, via Michael Makowsky.

Sober Look has the numbers, for instance:

The area’s CPI is now below 0.5% on a year-over-year basis. Yesterday we saw German CPI hit new lows (see chart) and Italy’s inflation rate is now hovering just above zero.

What is the most economical model here?  The ECB invested in building up a lot of credibility in some areas, such as price level stability, but that means less credibility when it comes to pushing higher inflation.  So to get two percent inflation, perhaps the ECB has to genuinely and truly seek four percent inflation, because a big chunk of the market won’t believe they really want four percent.  Four will get them to two.

The ECB in fact may be wishing for two percent price inflation and getting…less than that.  Which in turn conditions market participants to doubt the commitment of the ECB to the rates of price inflation which it claims to be seeking.  The ECB and the citizenry can get stuck in a self-fulfilling prophecies equilibrium, yet without requiring a standard liquidity trap.

I don’t by the way think of this as a time consistency problem.  The ECB doesn’t want to be in a position where it is genuinely shooting for four percent inflation, even if that means it will end up imposing only two percent on the Germans.  They are still caught with their proverbial pants down and their internal culture of inflation love would be seen as unacceptable and illegal too.  Yes, the ECB is selfish, and law-abiding as well, as its charter mandates price stability as the goal.

And you know what?  When “selfish” and “law-abiding” point in the same direction, that is very often what you will get.

The notice is here, signers include Bob Solow and Dani Rodrik.  I agree with their arguments, and you will find my slightly different but still consistent earlier critique here.  Here is one bit from the press release:

“It’s a widely shared opinion among economists that the court’s attempt to force Argentina into a default that nobody – not the debtor nor more than 90 percent of creditors – wants, is wrong and damaging,” said Mark Weisbrot, economist and Co-Director of the Center for Economic and Policy Research, who helped circulate the letter.

Matt Levine has a good post on the situation here.