Month: March 2005

Who pays for pharmaceutical innovation?

Since 1999 America has accounted for 71% of the sales of new chemical entities, up from 62%. Japan and Germany, the next two largest pharmaceutical markets, account for just 4% each.

That is from Doug Bandow at Cato, here is the link.  Of course this figure stems from both high volume and high price in the U.S.; it is a massive form of implicit foreign aid.  By the way, for those of you interested in Cato University seminars on economics — "for citizens" — read more here.

Sweden fact of the day

Sweden’s largest trade union admitted that the official 5.5 per cent unemployment rate is hiding a "real unemployment" of 20 to 25 per cent, which includes those claiming long-term sick pay or having taken early state retirement.

Here is the link, and thanks to Tim Worstall for the pointer.  Here is Alex’s earlier post on disability.  Here is my earlier post on disability in the Netherlands.

Proposals to improve animal welfare can backfire

Here is yet another (and final) excerpt from my paper on animal welfare, now available on-line:

A boycott of meat products alone, however, may simply induce animals to be shifted into the [less salutary] sector. Ideally the boycotters would like to boycott meat and the product of the sectors that are even worse for animals, but such a broader boycott may not be possible. The boycotters may not be able to “reach” the animals used in the worst sectors. Not all such animals, for instance, are used to produce consumer goods sold in stores. Some laboratory animals are used to produce goods sold only to corporations, or are used for university research. The danger is that a boycott of meat will simply shift animals into very bad and harder-to-reach sectors. Instead, a subsidy to the better sector will have more predictable effects, by pulling animals out of the other, less favorable sectors, and thus should be preferred.  [Addendum: You don’t need to switch individual animals, just reinvest resources in animal breeding and care.]

…This point bears on the debate between vegans and vegetarians (a vegan eats neither meat nor dairy products, while a vegetarian eschews meat alone.) Let us call the worst sector for animals the dairy sector, and let us call the less worse sector the meat sector. On factory farms, dairy cows typically have inferior lives to cows raised just for meat. The dairy cow is locked up for its early years and then killed at a young age, often before reaching the age of four. Usually meat cows are allowed to graze freely for more years, before being killed. If there is a boycott of meat, but not dairy, the farmer may simply shift animals into the dairy sector, to the detriment of their welfare. A vegan may do the world the most good of all, but a meat eater may benefit animals more than does a non-vegan vegetarian. Meat eaters help keep the dairy sector from absorbing more cows. In essence, meat eaters bid up the price of cows, which will keep them out of other uses, some of which might be quite painful for the cows.

There is also a case for selective vegetarianism.  Although factory farms are prevalent in the United States, family farms (which typically treat animals better), are more common in Western Europe.  An optimal group norm might then involve eating meat when in Europe but not in the United States.  Similarly, we might eat meat only in very fine restaurants, where the animals typically are raised under free-range or otherwise superior conditions.

And now comes "defending the undefendable," namely European agricultural subsidies (no hate mail please!):

Agricultural subsidies, especially as implemented in Europe, may benefit animals and animal lovers. Many of these subsidies prevent small family farms from being absorbed by large agribusiness and factory farming. Given that family farms tend to treat animals better than do factory farms, such policies will improve animal welfare. Economists usually consider European agricultural policy to favor special interests at the expense of the general welfare. Nonetheless these subsidies have at least one potential rationale, once we take animals into account.

Is the number of autistics rising?

I read the following in USA Today:

A decade ago, one in every 2,500 U.S. children had autism; now it’s one in 166, the Centers for Disease Control and Prevention says.

But is it true?  Autism Diva (a new blog) raises some serious doubts.  Autism may still be rising, but this number may be the latest "urban legend."  Using Google alone, I could not track down the ultimate source (beyond the CDC press release) of the "1 in 166" claim.  I can, however, tell you this.  A search for "autism 166" yields (repetitive) riches on, but nothing real on

Addendum: Here is one serious piece; it supports my skepticism.  Thanks to Daniel Starr for the pointer.

Why did so many Germans support Hitler?

A well-respected German historian has a radical new theory to explain a nagging question: Why did average Germans so heartily support the Nazis and Third Reich? Hitler, says Goetz Aly, was a "feel good dictator," a leader who not only made Germans feel important, but also made sure they were well cared-for by the state.

To do so, he gave them huge tax breaks and introduced social benefits that even today anchor the society. He also ensured that even in the last days of the war not a single German went hungry. Despite near-constant warfare, never once during his 12 years in power did Hitler raise taxes for working class people. He also — in great contrast to World War I — particularly pampered soldiers and their families, offering them more than double the salaries and benefits that American and British families received. As such, most Germans saw Nazism as a "warm-hearted" protector, says Aly, author of the new book "Hitler’s People’s State: Robbery, Racial War and National Socialism" [TC: I cannot find it on U.S. Amazon, try this German link] and currently a guest lecturer at the University of Frankfurt. They were only too happy to overlook the Third Reich’s unsavory, murderous side.

Financing such home front "happiness" was not simple and Hitler essentially achieved it by robbing and murdering others, Aly claims. Jews. Slave laborers. Conquered lands. All offered tremendous opportunities for plunder, and the Nazis exploited it fully, he says.

Read more here.  I am a believer in studying the extremes.  Hitler’s Germany (extreme oppression and persecution), modern Haiti (a complete mess), and Yugoslavia in the 1990s (relapse from tolerance into murder) have a special hold on my attention in this regard. 

And might you think that the German soldiers always followed orders?  How about this:

In Auschwitz…there is not one case in the records of an SS man being prosecuted for refusing to take part in the killings, while there is plenty of material showing that the real discipline problem in the camp — from the point of view of the SS leadership — was theft [from arriving Jews and others].  The ordinary members of the SS thus appear to have agreed with the Nazi leadership that it was right to kill the Jews, but disagreed with Himmler’s policy of not letting them individually profit from the crime.  And the penalties for an SS man caught stealing could be draconian — almost certainly worse than for simply refusing to take an active part in the killing.

That is from the new and noteworthy Auschwitz: A New History, by Laurence Rees.

Markets in everything

This one was only a matter of time:

Twelve tons of 15-year-old horse manure will be going under the hammer at a charity auction in west Wales.  Contractor Eynon Price, of Llandeilo, who donated the vintage dung, said it was worth more than £140.  Said to do wonders for roses and trees, the manure is one of 70 lots being sold in aid of Aberglasney Gardens.

It’s broken down really well and it has not got much acid in it so it is very good for planting roses or anything like that."

"This is quite a big load [sic] so you would be looking at anything up from about £140," he added.

Here is the story, and thanks to John Palmer, who writes The Eclectic Econoclast economics blog.

Stop-Loss Regrets

The Army and National Guard are having trouble meeting their recruitment goals.  The basic reasons are obvious but I suspect that an overlooked reason is the use in recent years of stop-gap and stop-loss policies – pulling people back into military service (from the Individual Ready Reserve) possibly years after their active duty has been completed and preventing people from leaving the field after their contractual obligations have ended, respectively.

It’s one thing to volunteer for a known tour of duty – it’s something more to subject your life-plans to an unknown schedule dictated by someone else.  The stop-loss measures may have stopped losses temporarily but part of the price is understandably reluctant recruits.

Arrow, Becker, and Levitt on Grokster

How is that for heavyweights?  You can add William Landes, Kevin Murphy, and Steve Shavell — among others — to the list.

Here is their Amicus brief on the Grokster case coming before the Supreme Court.  (Here is a more general list of amicus briefs on the case.)  Their bottom line, however, is general rather than concrete:

They argue that indirect liability often makes economic sense.  If a file-sharing service can distinguish and police illegal files at low cost, that service should not be able to hide behind the 1984 Sony Betamax decision (i.e., the mere existence of non-infringing uses for a technology implies no liability).  Furthermore we should consider whether P2P services offer real benefits above and beyond fully legal alternatives, such as iTunes.  They stress that previous courts have failed to ask these key questions.

I’ve argued similar points myself, but my doubts grow.  I worry we cannot find a standard of indirect liability with clear lines.  Just how easy must it be to monitor illegal behavior and how hard must Grokster try?  Most likely all the variables lie along a relatively smooth continuum.

And who else can be indirectly liable?  File-sharing through iPods, email, blogs, and instant messaging is larger than you think.  36 million Americans admit to having shared files in this manner. 

"All these internet technologies share this common mass-copying capability: e-mail, web servers, web browsers, basic hard drives," said Jason Schultz, an attorney with the Electronic Frontier Foundation, which represents StreamCast Networks. "There’s no principal distinction between (P2P) and other internet technologies in the way it’s designed.

Read more here

Is the question which level of technology can police illegal file sharing and copying most easily?  This might not be Grokster at all, since they have only an indirect link to the downloaded files.  Such a "least cost" approach might result in a monitoring chip put into all hard drives.  Yikes. 

Does Grokster supply any economically useful product that the legitimate services don’t?  Well, how about free files for those who wouldn’t otherwise pay for them?  If we approach the problem in a utilitarian manner, we can’t flinch from this conclusion.

My current best guess is that an economic approach — however correct in general terms — won’t come up with any new solutions we can live with.  We may be stuck with the Sony case after all.

Markets in Everything: Super Blogging

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But of course "you must act fast to get the maximum benefit from Blogging."

Thanks to the always super J-Walk-Blog for the pointer.

The economics of Terri Schiavo?

Steve Landsburg weighs in on Terri Schiavo:

I have less understanding of why Schiavo’s parents want to keep feeding her. And insofar as they want others to keep feeding her–through Medicare, etc.–I think we can safely ignore their preferences. But provided they and their supporters are willing to bear those costs, I infer that this is something they want very much and there’s not much reason to stop them.

I doubt that a "willingness to pay" standard accurately values human life in such instances (in fairness to Landsburg there is more to his position, read his entire post).  Often it picks up a mere ability to spend money, rather than any relevant notion of human welfare.  Whether the husband can outbid the parents may simply depend on whether he has gone bankrupt from his previous involvement in her care.   

Nor do I think that family decisions — whatever your view in the Schiavo case — should be decided by a real or hypothetical societal auction.  If there is any "protected sphere" for human decision-making, surely it is here.  The problem is that we don’t agree on how to define the guardian of the sphere — is it "Terry" or "husband as guardian of a no-longer-living Terry"?

This case will only grow in symbolic importance.  Keep in mind, the care of Terriy Schiavo has been financed by the state of Florida and Medicaid for the last several years.  According to one AP story, it costs $80,000 a year to keep her alive.  Note that "a judge approves all expenditures, from attorneys’ fees to the woman’s haircuts."

Therein we see the problem for the future.  Say you take a "pro-life" stance on this case.  What will happen when we can maintain, say, 30 percent of the "dying" population in this kind of state for decades?  Such technologies are probably only a matter of time.

Say you take a "pro-husband" stance.  Presumably you cite evidence for Terri’s severely impaired mental facilities.  What will happen when we can keep, say, 30 percent of the "dying" population in a somewhat less impaired state for decades?  Such technologies are probably only a matter of time.  Was her vegetative state really the issue, or was it just cost?  Our views will be tested, sooner or later.

I don’t see much guidance here from economics, political philosophy, or virtue ethics.  My instincts are to "look toward the future," but I don’t have a good argument that avoids all possible repugnant conclusions.  (I will never forget Julie Margolis, asking me in my job interview at UC Irvine, why we do not value human life at replacement cost.  That would be no more than a few thousand dollars, given that some women stand right on the verge of wanting another baby.  I didn’t have a good answer, although they hired me anyway.)

As Medicare grows as a percentage of the federal budget, this issue will become increasingly important.  And as technology advances, no one will be left with a comfortable intellectual position.

The evolution of protectionism

To get the industrial Midwest with its 140,000 steel workers to vote Republican in congressional elections, President Bush slapped a prohibitive tariff on imports of steel from Europe and Japan in 2001. He got what he wanted: a (bare) Republican majority in the Congress. But while the large steel users (such as automobile makers, railroads and building contractors) were forced by the tariff to buy domestic, they immediately set about cutting their use of steel so as not to spend more on it than they would have had to spend had they been able to buy the imports. Bush’s tariff action thus only accelerated the long-term decline of the traditional midwestern steel producers and the jobs they generate. Tariffs, in other words, can still force users to buy domestic, but they are no longer capable of protecting the domestic producers’ prices. Those are set through information and on the world-market level.

This development underlies the steady shift in protectionism: from tariffs–the traditional way–to protection through rules, regulations and especially export subsidies. World trade has grown spectacularly in the last fifty years. The largest growth has been in subsidized farm exports from the developed world: western and central Europe, Australia, Canada and the United States. Farm subsidies are now the only net income of French farmers, as their crops produce nothing but net losses and are grown only as the entitlement for the subsidies. These subsidies are in fact a major–perhaps the major–cement of the Franco-German alliance [TC: touche’, und Autsch!], and with it, of the European Union.

That is Peter Drucker, read more here.

Sachs v. Easterly

It’s sad to see a first-rate economist descend to the level of a third-rate politician.  But saddened is what I feel after reading Sach’s response to Easterly’s review of The End of Poverty (see also Tyler’s comments).

Consider this:

Easterly’s simplistic approach fits well with many conservatives in
Washington, who would rather blame the poor than help them. Somehow the
world’s poorest people are made out to be our enemy. According to this
upside-down worldview, the people dying of malaria are out for our
money — all $3 per year that it would cost each person in the rich
world to help Africa mount an effective control program!

Easterly, of course, said no such thing.  What he said is that the tinpot dictators of Africa and their cronies are out for our money and they often succeed in diverting it to their own pockets.  Ignoring this reality is the simplistic approach.