Political Science

WSJ: A federal court in New York delivered a setback to the Food and Drug Administration, ruling the agency can’t bar a drug company from marketing a pill for off-label use as long as the claims are truthful.

The decision by the federal district court in the Southern District of New York, is the latest of a line of such cases. It concerns the Irish company Amarin Pharma Inc. and its fish-oil-derived drug Vascepa, and it has been closely watched by the pharmaceutical industry. The company asked the court to stop the FDA from enforcing its off-label marketing ban, and the court agreed.

The ruling is important because in the last few years the FDA has extracted billions of dollars in settlements from pharmaceutical firms for engaging in what appears to be constitutionally protected speech. In fact, the courts have repeatedly ruled that FDA and Congressional restrictions on truthful and non-misleading off-label marketing are unconstitutional.

In Washington Legal Foundation v. Friedman, for example, the DC court issued an injunction preventing the FDA from prohibiting, restricting, sanctioning or otherwise seeking to limit pharmaceutical and device manufactures from disseminating information about off-label uses from peer-reviewed professional journals or textbooks. In U.S. v. Caronia the court (2nd circuit) reversed a criminal conviction and said that the FDA cannot criminalize truthful promotion of off-label uses of approved drugs. Indeed, the court in that case defended the utility of such promotion:

…prohibiting off-label promotion by a pharmaceutical manufacturer while simultaneously allowing off-label use “paternalistically” interferes with the ability of physicians and patients to receive potentially relevant treatment information; such barriers to information about off-label use could inhibit, to the public’s detriment, informed and intelligent treatment decisions. See Va. Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 748, 770 (1976)

…See also Sorrell, 131 S. Ct. at 2670- 72 (“[The] fear that [physicians, sophisticated and experienced customers,] would make bad decisions if given truthful information” cannot justify content-based burdens on speech.”) (citing sources);

…Liquormart, 517 U.S. at 503 (“[B]ans against truthful, nonmisleading commercial speech . . . usually rest solely on the offensive assumption that the public will respond ‘irrationally’ to the truth. . . . The First Amendment directs us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good.”).

In Washington Legal Foundation v. Henney the court summed up concisely:

The First Amendment is premised upon the idea that people do not need the government’s permission to engage in truthful, nonmisleading speech about lawful activity.

(By the way, it’s this line of cases that makes me think that 23andMe has a strong first amendment case for presenting to customers information about their own DNA.)

The courts were exactly correct. Off-label uses of approved drugs are a vital part of the discovery process of modern medicine. New uses for old drugs are often discovered through serendipity and close observation in the field. Indeed, modern medicine moves faster than the FDA and it often happens that the first-line therapy is an off-label treatment. Prohibiting firms from truthfully discussing such treatments with physicians is not just unconstitutional it’s also paternalistic and harmful to patient welfare.

This case, Amarin v FDA, is especially egregious because the company wants to discuss with physicians the results of its own FDA-approved trial. Amarin has a fish-oil derived drug designed to reduce triglyceride levels and it already has approval to sell and market this drug in patients with very high levels of triglycerides. It also wanted approval to sell the drugs in patients with high (but not very high levels) and it conducted an FDA-approved trial that showed that the drug is safe and effective at reducing triglyceride levels in this set of patients.

Although the trial was successful the FDA, for reasons discussed below, refused to grant approval. Amarin isn’t disputing the refusal but they wanted to tell physicians the results of the trial and then let the physicians and their patients decide whether reducing triglyceride levels is something that they want to do given currently existing evidence about triglyceride levels and heart attacks. The FDA threatened to pursue civil and possibly criminal charges but the court has now precluded the FDA from those pursuits.

Aside from the first amendment issues, the case is also interesting as another example of how a capricious FDA can kill innovation through regulation uncertainty. (The story is similar in many respects to that told by Joseph Gulfo in Innovation Breakdown, see my review).

To wit: Amarin wanted approval to sell its drug to patients with high levels of triglycerides and they obtained a special protocol agreement (SPA) from the FDA to run a study in this population. Quoting the court:

An SPA agreement is a written agreement that a manufacturer may enter into with the FDA, which sets out the design and size parameters for clinical trials of a new drug, and the conditions under which the FDA would approve the drug. For the manufacturer, such an agreement minimizes development risk by providing regulatory predictability: Provided that the manufacturer follows the procedure set in the SPA agreement and the drug proves meets the benchmarks for effectiveness set in the agreement, the FDA must approve the drug.

The results of the study were good:

The ANCHOR study achieved each numeric objective that the SPA Agreement had set: The results showed that Vascepa produced a statistically significant decrease in triglyceride levels in persons with persistently high triglycerides, as well as in other lipid, lipoprotein, and inflammatory biomarkers.

…Because Amarin had met all requirements for approval set out in the ANCHOR SPA Agreement, Amarin anticipated that the FDA would approve Vascepa for the additional use that Amarin sought, i.e., by patients with persistently high triglycerides.

Instead of approving the drug, however, the FDA rescinded their agreement. The FDA argued that although the drug did reduce triglyceride levels it was no longer certain that reducing triglyceride levels would reduce cardiovascular events.

Can you imagine the tailspin this sent researchers at Amarin into when they learned that the drug would not be approved despite passing all the agreed upon tests? (Read Gulfo for a vivid account of his case).

Who will invest in bio-medical advances with this kind of risk? Sergei Brin said that he didn’t want to invest in health care 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.” It’s precisely this kind of regulatory uncertainty that an SPA was meant to avoid. By rescinding their agreement, the FDA is sending the message to investors that no one is safe.

In India, for example, the number of taxpayers in relation to voters in the economy has been about 4-4.5% for a long time.

That is from an in-depth discussion about the Indian economy between Karthik Muralidharan and Arvind Subramanian (Chief Economic Adviser, Government of India). The reference is to income tax, of course. It’s a great discussion and the best place to begin if you want to understand the Indian economy today.

Despite having one of the highest per capita incomes in the world, Singaporeans, believe it or not, have a few complaints.  Some of these are political, but others are economic, and many intertwine the two factors.

Here’s a simple model which helps explain at least a few of these complaints.  The nicer a place Singapore becomes, the more it is flooded with outside capital and migration.  That raises the cost of land and thus rents and home prices.  Imagine if I didn’t own a home and suddenly Fairfax, VA became like Beverly Hills or Palo Alto.  I would have to pay more, but wouldn’t benefit much from the proximity of the movie stars or the tech titans.

For Singapore these effects are especially strong.  The potential flow of outside capital is large relative to the size of the city-state.  And because Singapore is small, the supply of decent, low-rent neighborhoods to move to is drying up and so the hinterland has pretty much disappeared.  That said, I once argued that some parts of the Singapore arts community will end up priced into southern Malaysia; not every Singaporean I spoke to was happy to hear this.

(If you are studying the future of Singapore, keep your eye on that southern Malaysian gateway.  One of the most important questions the two governments face is just how easy to make that border crossing.  Right now it is “doable” but could be much easier, given the underlying wealth and competencies of the two governments.)

The political reaction is to make Singapore an even nicer place to live, which is what you would expect from a competent government.  That’s great, but in some ways it makes the underlying problem worse by attracting additional foreign capital and labor.  The city becomes more Westernized and more corporate and land values rise all the more.

This risk to Singapore is fundamentally about pecuniary externalities.  It would all work better if this influx of capital and labor boosted service sector productivity for ordinary Singaporean jobs, but it is not obvious that it does.  I’ve even heard credible reports that service sector productivity in Singapore is declining, though only slightly.

While most Singaporean households own their living quarters (I have seen estimates ranging from eighty to ninety percent), this is not entirely comforting to younger people living with their parents who eventually must buy or rent their own place.  Or to immigrants, who make up over slightly half of the population and who typically do not own land property.

Eventually this stock of housing wealth will be inherited, but in the meantime large numbers of Singaporeans feel “income poor.”  And they feel more income poor each year.  Implicitly they convert future wealth into current liquidity by borrowing and indeed Singapore has a level of household debt which is surprisingly large to many people — about 75% of gdp.  The debt service on those loans will cut into future real income of course.  And the population faces a rate of forced saving which can amount to a third of income.

The upshot is that immigrants to Singapore consume far more niceness than they would like to, and at high prices.   The citizens and land and apartment owners and capital owners become wealthy, but at the same time many people — most of all service sector workers, including the natives — feel they had higher living standards ten or fifteen years ago.

Many Singapore residents would be better off if in some regards the country were not so nice.

That is a hard problem to solve, but in some ways a nice problem to have.

Happy Birthday Singapore!

The author is Michael Booth and the subtitle is Behind the Myth of the Scandinavian Utopia; please note the book is (at times) as much tribute as critique.  I found it interesting and informative throughout, here a few passages:

Right now, the Danes are especially preoccupied with role playing — dressing up like Gandalf or elves and acting out violent narratives deep in the woods with their foam “boffers” (the name given to role-play weapons).  There are also 219 folk dancing clubs in Denmark, but do not worry, as with the pigs, you very rarely see them.

Here is a not funny to outsider satiric video about the Danish language, cited by the book, which refers to its “declining intelligibility.”  The video has about five million views.

On Finland:

You have got to love a country that enters Lordi into the Eurovision Song Contest and wins, which consumes more ice cream per capita than any other European country (14 litres a year), and has more tango dancers than Argentina.

I enjoyed this fragment of a sentence:

The Finns’ obmutescence seemed especially to go hand in hand with that other most famous Finnish characteristic…

On economic issues, the author thinks Denmark in particular is overextended and in denial about the need for reform.  Overall I found the Danish sections to be the most interesting and detailed, the chapters on Sweden to be the least deep, and the Iceland and Finland sections to have the most new information.

Recommended, it is fun plus you will learn something.  Imagine “Bill Bryson goes to Scandinavia,” as The Christian Science Monitor put it.

There is a newly published paper by Andrew Beauchamp:

The U.S. abortion market has grown increasingly concentrated recently, while many states tightened abortion laws. Using data on abortion providers, I estimate an equilibrium model of demand, price competition, entry and exit, to capture the effect of regulation on industry dynamics. Estimates show regulations played an important role in determining the abortion market structure and evolution. Counterfactual simulations reveal increases in demand-aimed regulation were the most important observed factor in explaining recent abortion declines. Simulating Utah’s regulatory regime nationally shows tightening abortion restrictions can increase abortions in equilibrium, mainly through tilting the competitive landscape toward low-price providers.

There are ungated versions here, and for the pointer I thank the excellent K.

Maybe not:

How does Scotland use the relative flexibility afforded by its fiscal settlement? In 2013/14 it spent about 6.5 per cent more on health per person than the UK average, down from 16.5 per cent in 1998/1999. While allowing the extra amount it spends on health—and on education—to fall, the Scottish government has dramatically increased spending in other areas. For example, Scotland spends more than twice as much per person on “enterprise and economic development” and agriculture than the UK average, three-quarters more per person on transport and approximately one-half more on “recreation, culture and religion.”

One might expect the Scottish government to reduce the extra amount it spends on core public services if Scotland’s health service, education system and police force were noticeably better than those in England. But there is little evidence that this is the case.

That is from John McDermott’s lengthy critique of SNP, there is much more at the link, an excellent piece.  There is this part too:

In PISA, the influential international education tests, “Scotland’s performance was significantly worse in 2012 than it had been in 2000,” noted Keir Bloomer, an education expert and one of the authors of the country’s curriculum. The previous government shares responsibility for these results, but it was the SNP who withdrew Scotland from two other important cross-country tests: the Progress in International Reading Literacy Study (PIRLS) and the Trends in International Mathematics and Science Survey (TIMSS). Bloomer added: “It is difficult to avoid the suspicion that Scotland has chosen to make itself less accountable by ceasing to take part in the surveys in which it tended to do less well.”

Bloomer also says that contrary to the SNP’s claims, the attainment gap between rich and poor pupils has widened. Referring to PISA results, Bloomer said that reading and maths scores declined by more among poorer pupils, and the only reason equity increased in science results is because those of richer students fell further than those of poor pupils. Referring to Scottish data, Bloomer added that “there is no evidence that the gap has narrowed.”

This kind of critical analytic reporting, backed by economic reasoning and data, should be more common.

Hat tip goes to the essential Gideon Rachmann.

Over the last quarter Singapore’s gdp fell at an annualized rate of 4.6%, in large part because of China problems (that’s your “China fact of the day”).  And household debt is about 75% of gdp.  Yet the nation’s finances are much sounder than that may sound, and it is worth thinking through why.

I think of the government of Singapore as having three main fiscal arms.  One is a tax collection authority, one is like a life insurance company, and the other is like a hedge fund.  In fact it is a hedge fund.

The tax collection angle is pretty straightforward.  Singapore does an excellent job of both collecting taxes and keeping the overall (direct) tax burden low.  As the population ages, however, we can expect these taxes to rise somewhat, but in a predictable and manageable way.

Now consider the financial side, in particular the question of what the government earns on the investment of people’s retirement funds.  Here it gets more interesting.

Singapore’s social security and welfare system relies on forced saving.  Overall this policy has served Singapore well, and has kept down government as a share of gdp, but in an era of low rates of return it may stumble.  Imagine for instance that the retirement fund were to earn zero percent or so (real) over a period of ten years.

There is already a perception that people put in a lot of forced savings for what they get back for retirement.  I’ve heard Singaporeans claim that they “save for forty years and get paid for twenty,” and similar such assessments.  By no means is everyone happy with the system.

Here is a good survey of criticisms (pdf), including this one:

Those dissatisfied with CPF [Central Provident Fund, the forced savings body] interest rates argued that, given the comparatively higher returns from investment bodies like the GIC and Temasek Holdings who invested government funds, the government should rightfully offer a higher rate of return to CPF holders. The failure to do so was thus perceived as proof that the current government was miserly and profit-seeking at the expense of CPF holders’ welfare. Some also highlighted that annual dividends provided under Malaysia’s Employment Provident Fund (EPF) 83 were higher than the 2.5-3.5% annual interest provided on the OA and the 4-5% on the Special, Medisave, Retirement Accounts (SMRA), as proof that CPF rates could be higher.

Here is a useful ADB history of the Central Provident Fund (pdf, and I’ll use the shorter CPF).  In its early years the fund did well by investing in the low-hanging fruit of Singapore’s housing stock.  That option will not be as socially or financially potent looking forward.  Here are concerns about the sustainability of CPF investment plans (pdf).

The CPF balance sheet states that funds are invested in high-quality government securities, but in fact there is a sizable surplus and a lot of the money is invested abroad, basically as part of sovereign wealth fund activities (see pp.13-15 in this pdf, the link is interesting more generally too).

In essence, one part of this system has the financial structure of a life insurance company, and another part has the financial structure of a hedge fund.

Singapore as a financial corporation has amassed an enormous amount of wealth, due to the earth-shattering performance of its fund managers.  You can think of modern Singapore as in part built on the phenomenal “hedge fund” returns of the 1990s.

I read in the Business Times that Temasek, one of the two major Singaporean funds, has averaged a 16 percent rate of return since its inception in 1974.  That is impressive, and even if you think that exact number is somehow cherry-picking, everyone agrees the returns have been high.  The problem of course is that we do not expect the next few decades to be anywhere near that performance, especially as Asian growth has been slowing down and China is no longer an easy path to riches.  Singapore runs the risk of being the next Warren Buffett, so to speak.  That said, Buffett is still a pretty rich guy, as is Singapore; imagine shouting to a bum on the street “Hey, buddy — you’re going to be the next Warren Buffett!”  He wouldn’t feel so distressed.

For all the talk of forced savings, you can understand the current CPF as (partially) a pay-as-you-go system, where some of the CPF funds are transferred to government holding companies and then the higher returns are kept within the state.  I cannot ascertain the size of that transfer, but I believe it to be large.  As a public choice issue, the market-oriented defenders of forced savings programs need to come to terms with the fact that there is far less than full pass-through.  That said, the private savers mostly would not have earned those high rates of return on their own.

Singapore built up a strong state rather rapidly, but partially at the expense of retirees, and those who must save along the way for retirement, and you can think of that as Singapore’s major hidden tax.  “State capacity,” when turned to beneficial ends such as infrastructure and wise decision-making, benefits the young most of all.  In my view it is good policy to be investing so much in the more distant future, rather than in the elderly, but of course opinions here will differ.

One implication, by the way, is that if you measure wealth rather than income, Singapore’s government is much larger than it may at first appear.  On the flow side, Singapore is small government — about eighteen percent of gdp by many measures — but on the stock or wealth side it is big government.  That is one reason why the country has fans on both sides of the political spectrum.

Of course as retirees ask for more, as is the political trend, Singapore will have to increase payments. That will be a massive de facto privatization of the wealth held within the Singaporean state apparatus.  But of course the privatized flows will, to a large extent, be soaked up by household debt and recycled to the financial sector.

It will be tricky to maintain the balance between having a strong state and meeting voter demands.  Such is the tension of living at r> g, and in a funny way the Singapore scenario has, at least until now, fit Piketty’s model fairly well, albeit with a much larger role for the state.  The problems will come when those rates of return on capital start to fall as indeed I believe they are about to.

But don’t worry just yet — Temasek a few weeks ago announced that they pulled in a return of over nineteen percent during this last year.

I continue in my belief that Singapore is one of the most fascinating places in the entire world.  If you have not yet been, I envy you for the experience of visiting the first time.

…Even Cowen tells OZY that even he doesn’t want Tabarrok to “entirely get his way” on all things…

Otherwise it is all about Alex, but that is my cameo.  It is a good and fun profile, though I think it understates Alex’s pragmatic side somewhat.  The author is Sanjena Sathian.

Singapore_Flag12

Singapore as an independent nation will be fifty years old this August 9.  In the comments, a number of you have asked me why I find Singapore so special.

I would cite three features of the country above all else:

1. It is a place where large numbers of people are obsessed with both food and economics.

2. The citizens and leadership of Singapore have an unparalleled knowledge and understanding of economics, engineering, and public policy.  In this regard the polity is distinguished in world-historic terms, and anyone who visits is enjoying a remarkable privilege to see this in action.  In my admittedly idiosyncratic view, this is one of the best and most important sights of the contemporary world, more interesting than most natural wonders.

3. Singapore has created what is possibly the highest quality bureaucracy the world has seen, ever.  Imagine a country where you can have a serious debate as to whether there is a brain drain into the government rather than out of it!

Singapore of course, like all places, has various problems and imperfections, but I believe its significance does not receive enough recognition from outside commentators.

Here is a good article about how Singapore is seeking to export its own expertise.

That is the new and excellent book by Sebastian Strangio, which you can think of as a post-Sihanouk look at the country from a political economy point of view.  Here are just a few bits:

The cruelty and callousness that allowed jilted wives to order and commit such brutal attacks on young women also had its echo in history.  As the historian Michael Vickery has written, patterns of sudden and extreme violence had deep roots in Cambodia, especially against those groups and individuals defined in some way as enemies.  Through cruel violence found its fullest expressions under Pol Pot, it long predated Democratic Kampuchea, stemming from cultural notions of face, honor, and revenge, in which personal grudges (kum) could elicit a disproportionate and overwhelming response.

And:

Hun Sen’s rise over the past two decades has been accompanied by the rise of what might be called HunSenomics — a blend of old-style patronage, elite charity, and predatory market economics.  Since the transition to the free market in 1989, Hunsenomics has succeeded in forging a stable pact among Cambodia’s ruling elites, but has otherwise done little to systematically tackle the challenges of poverty and development.

And:

Because Hunsenomics provides few incentives for sustainable agricultural development, Cambodia’s land and water resources remain drastically underutilized.  Just a third of Cambodia’s total land area is currently under cultivation — a much lower proportion than in neighboring countries.  Only 18 percent of this  land was irrigated as of 2005, compared to 33 percent in Thailand and 44 percent in Vietnam, and due to lack of maintenance only a fifth of irrigation systems were fully functional.  As a result, rice yields per hectare lag far behind the likes of Vietnam and Thailand.

Definitely recommended, and as Dan Klein and I used to say to each other “You so much learn the whole book.”

Tsuyoshi Shimmura, Shosei Ohashi, and Takashi Yoshimura have a new paper:

The “cock-a-doodle-doo” crowing of roosters, which symbolizes the break of dawn in many cultures, is controlled by the circadian clock. When one rooster announces the break of dawn, others in the vicinity immediately follow. Chickens are highly social animals, and they develop a linear and fixed hierarchy in small groups. We found that when chickens were housed in small groups, the top-ranking rooster determined the timing of predawn crowing. Specifically, the top-ranking rooster always started to crow first, followed by its subordinates, in descending order of social rank. When the top-ranking rooster was physically removed from a group, the second-ranking rooster initiated crowing. The presence of a dominant rooster significantly reduced the number of predawn crows in subordinates. However, the number of crows induced by external stimuli was independent of social rank, confirming that subordinates have the ability to crow. Although the timing of subordinates’ predawn crowing was strongly dependent on that of the top-ranking rooster, free-running periods of body temperature rhythms differed among individuals, and crowing rhythm did not entrain to a crowing sound stimulus. These results indicate that in a group situation, the top-ranking rooster has priority to announce the break of dawn, and that subordinate roosters are patient enough to wait for the top-ranking rooster’s first crow every morning and thus compromise their circadian clock for social reasons.

In case you had any doubts.  The pointer is from Michelle Dawson.

The subtitle is Essential Writings by Our Greatest Thinkers, and the editor is Elizabeth D. Samet.  Here’s the shocking truth: these really are writings by our greatest thinkers!  Usually I am allergic to the topic of leadership and all the more allergic to edited volumes.  But this book has well chosen excerpts from Thucydides, Cervantes, Borges, Marcus Aurelius, Tolstoy, Milton, Plutarch, and Shakespeare, among many others, and a variety of moderns, including Mandela, Gandhi, Frederick Douglass, and Osip Mandelstam’s poem on Stalin.

This is actually a remarkable book.

Arthur C. Brooks, The Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America.

Greg Mankiw has reviewed the book.

The University of New Hampshire’s Bias-Free Language Guide came in for widespread criticism earlier this week for possibly chilling speech by labeling words such as “American,” “illegal alien,” “foreigners,” “mothering,” and “fathering” as problematic and non-preferred.

Commendations are due, however, to university president Mark Huddleston. The UNH reports:

The associate vice president for community, equity and diversity removed the webpage this morning after a meeting with President Huddleston. The president fully supports efforts to encourage inclusivity and diversity on our campuses. He does not believe the guide was in any way helpful in achieving those goals. Speech guides or codes have no place at any American university.

*Private Governance*

by on July 28, 2015 at 2:47 pm in Books, Economics, Political Science | Permalink

The author is Edward Peter Stringham and the subtitle is Creating Order in Economic and Social Life.  I haven’t looked through this book yet, but I am very much an admirer of the underlying research by Ed.  Here is Peter Thiel’s blurb:

“Stringham dispels state-worshipping fiction with historical fact to show how good governance has preceded Leviathan, ignores it when necessary, and can surpass it when it fails.”

Peter Thiel, Entrepreneur

Recommended.