Month: September 2023

Pharmaceutical Externalities

by  Alex Tabarrok in

In my view, pharmaceuticals are undervalued and underinvested in because, despite high prices, pharmaceutical innovations earn only a fraction of the value that they create (Nordhaus finds that in general that innovations reap only a small share of the gains that they create). In 2014, for example, we got Harvoni a new treatment that offered a complete cure for hepatitis C (HCV) infection. In 2014, Harvoni cost over $1000 a pill and between $60,000 and $100,000 for a full treatment. In 2015 Medicaid spent more on Harvoni than on any other drug and there were calls for regulation and price controls. Studies showed, however, that even at that high price, Harvoni was value/cost-effective. Today, with more competition, there are equivalent versions of Harvoni available from Amazon for $12,869 (and 64 cents) which is still expensive but cheap for a cure for an often debilitating and sometimes life-threatening disease (and the price is less for a private insurance buyer or Medicare/Medicaid). In 2030, Harvoni will go generic and prices will fall much more.

Writing at their new substack, Random Acts of Medicine (based on their book of the same name which I reviewed at the WSJ), Chris Worsham and Bapu Jena point us to another side-benefit of Harvoni and similar hep-C drugs. By curing hep-C these drugs results in fewer liver transplants but that means more livers are available for transplant to other people on the waiting list.

One simple statistic suggests that indeed, treatment of HCV is freeing up donor livers for patients with other diseases: in 2022, patients with chronic HCV infection represented only 11% of liver transplants (1,029 of 9,528)—down from the 38% in 2013 when the new HCV drugs were approved.

Beyond this simple figure, a new working paper by economists Kevin Callison, Michael Darden, and Keith Teltser has taken a new, rigorous look at data from 2014 to 2019 to understand how these new drugs for HCV have impacted liver transplants after their first 5 years of broad use. There were a number of encouraging findings:

  • Waiting lists for liver transplants were being occupied by fewer HCV-positive patients and more HCV-negative patients; this shift can be explained by an estimated 45% reduction in the addition of new HCV-positive patients to waiting lists
  • Patients on the waiting list were healthier, likely because waiting times for livers have decreased with less demand from HCV-positive patients
  • Compared to what would have been expected without the introduction of new HCV treatments, the researchers estimated a 39% decrease in transplants to HCV-positive patients coupled with a 36% increase in transplants to HCV-negative patients.
  • Over the five year period, researchers estimated 5,682 livers were transplanted to HCV-negative patients as a result of the new HCV drugs, corresponding to an economic value of $7.5 billion.

These kinds of external benefits from pharmaceuticals are often undercounted and they are one reason why I think the pharmaceutical price controls in the Inflation Reduction Act are a very bad idea.

My excellent Conversation with Lazarus Lake, ultra-marathons

by  Tyler Cowen in

Here is the audio, video, and transcript.  Here is the episode summary:

Lazarus Lake is a renowned ultramarathon runner and designer. His most famous creation (along with his friend Raw Dog) is the Barkley Marathons, an absurdly difficult 100-mile race through the Tennessee wilderness that only 17 people have ever finished in its nearly 30-year existence.

]Tyler and Laz discuss what running 100 miles tells you about yourself that running 26 miles does not, why so many STEM professionals do ultramarathons, which skill holds people back the most, why his entrance fee is no more or less than $1.60, the importance of the Barkley’s opaque application process, how much each race costs to mount, whether he sees a decline in stoicism and inner strength in America, what accounting taught him about running, which books influenced him the most, who’s going to win the NBA title next year, how he’s coping with increasing fame, the competition he’s most focused on now, and more.

And one excerpt:

COWEN: Of all of those skills, which is the most scarce? Which holds people back the most, apart from just the running and the endurance? What are they most likely to screw up?

LAKE: I think these days, navigation is a bigger problem than it used to be because people have become dependent upon GPS. If you don’t use part of your brain, it withers. If you’re not accustomed to knowing, in your head, where you are and just listening for a little voice to tell you when to turn next, it’s something of a problem because they don’t get to take GPS.

COWEN: They literally end up lost in the woods, some people.

LAKE: It happens.

COWEN: What happens to them then? They stay there for the rest of their lives? They wander slowly back to civilization, or . . . What becomes of them? They send out a call for help?

LAKE: If they don’t find their way out in a couple of days, we’ll go look for them. Usually, they will. So far, they’ve always found their way out.

COWEN: That’s the incentive.

LAKE: Sometimes they wander around for an extended period of time lost, but that’s what they signed up for. They’re on their own. All the electronics and all the conveniences of modern life are gone, and they just rely on themselves.

And:

COWEN: How did carrying bodies to the morgue influence your subsequent life?

LAKE: [laughs] How did you know I did that?

As I’ve said before, CWT guests who do not have a college degree are better on average (in equilibrium).

Robert Barro and Rachel McCleary to Heritage

by  Tyler Cowen in

The Heritage Foundation announced today that Harvard University professors Robert Barro, Ph.D., and Rachel McCleary, Ph.D., will join the organization in September.

Barro will serve as a distinguished fellow in economic thought and McCleary will be a senior visiting fellow in religion and political economy for the Thomas A. Roe Institute for Economic Policy Studies.

Both will continue their research in the fields of economics and culture. In addition, they will advise the Center for Data Analysis, contribute to policy research work, especially in the areas of debt, inflation, and economic growth, and mentor upcoming economists and policy researchers.

Here is the full press release.

Median voter theorem, again

by  Tyler Cowen in

Sweden looks set to miss its legislated climate targets, the latest sign of how combating global warming is slipping down the policy agenda.

The nation — the first globally to set a milestone target for net zero emissions — won’t reach that goal for 2045 with current measures, according to the center-right government’s 2024 budget submitted on Wednesday. It cited the tough economic climate along with a plunging krona, expecting to also fall short on other targets for protecting the environment.

Here is more from Bloomberg.  And from the BBC:

Rishi Sunak is considering weakening some of the government’s key green commitments in a major policy shift.

It could include delaying a ban on the sales of new petrol and diesel cars and phasing out gas boilers, multiple sources have told the BBC.

I do hope the median voter ends up happy with these ones…

The British ban on bully dogs

by  Tyler Cowen in

That is the topic of my latest Bloomberg column, here is one excerpt:

The decision offers some important lessons about regulation. First, sometimes an outright ban is better than charging owners or users a fee, or what economists call Pigou taxes. Under some economic theories, bans should be exceedingly rare. Instead, the government should charge a high fee for the right to own or use something. In this case, people who really want to keep their XL bully dogs will just pay more for a license.

XL bully dogs are different. They are symbols of fear and aggression, and their muscular body and fierce countenance reflects this, as does their very name. They are especially popular with criminal gangs.

There is value in getting rid of the symbol altogether. An outright ban of XL bully dogs probably makes people feel more safe than a high tax that makes the dogs rare but not illegal. That extra feeling of security might be partly irrational, but it still matters for how people process their daily stress.

A ban is also easier to enforce than a tax. If the dogs are banned, it is difficult to take one around in public without being spotted. Tax evasion, in contrast, is quite common, and tax laws can be difficult to enforce. The British government may be unwilling to throw people in jail for their unwillingness to pay their XL bully dog tax. Nor is it easy for the government to determine which are the responsible owners of XL bully dogs and which are irresponsible.

The question, then, is how to value owner demand for XL bully dogs.

To put my own cards on the table: I am frankly suspicious of anyone who wants to own a bully dog. Limiting preferences for such dogs now would help limit the spread of the XL bully dog itself, which has been in the UK only since about 2014 or 2015. Over time the dogs could become more established with more clubs of dog owners, more specialized trainers, and in general more support services. By banning the dogs now, the government might stop a wider preference for such dogs from developing. A ban would also help limit long-term frustration if, as I suspect, the decision is reached that XL bully dogs cannot be allowed to spread without limit.

The low or black market capitalization of many bully dog owners is another reason why strict liability here may not work so well.

As a side note, I don’t think the United States should follow the same policy, as I note later in the piece.  One argument (which I did not get to) is that the more guns you have (for better or worse), the less you have to worry about your dog policies.

Think about it.

I thank Sam Bowman for the initial pointer to this issue.

What Explains Educational Polarization Among White Voters?

by  Tyler Cowen in

Over the past 40 years of American politics, college-educated white voters have defected from the Republican Party, while the white working class has become a reliable source of Republican support. I study the issue basis of this realignment. To do so,
I generate over-time estimates of public opinion on four broad issue domains from 1984 to 2020 and develop a theoretical framework to understand how issue attitudes translate into electoral coalitions. Using this framework, I find that both economic and cultural issues have contributed to the observed realignment. College-educated white voters have become increasingly liberal on economic issues since the mid-2000s; college educated voters now express more liberal views than working class voters on every issue domain. Over the same time period, cultural issues have become more important for the voting decisions of the working class. The increasing weight placed on non-economic issues means that the conservative cultural attitudes of white working class voters translate to Republican support at a higher rate than in the past. Together, these findings suggest a nuanced role for economic and cultural issues in structuring political coalitions. Educational realignment has deep roots across issue domains, suggesting that the new coalitions are likely to be stable into the foreseeable future.

That is a new paper by William Marble, from someone on Twitter.  That is in my view not really good news.

Tuesday assorted links

by  Tyler Cowen

1. Can a turbo 3.5 GPT model play chess at around 1800?  And here it beats Stockfish 4 (not the strongest Stockfish, to be clear).  Not a perfect game, but a) it won, and b) every move it made was legal and coherent.  In other words, this version of GPT is teaching itself chess.  And replicated by Nabeel.  Too many people focus on “GPT as search and query engine” only, not realizing we have in essence invented a new kind of computer.

2. Working time lost to strikes; that was then, this is now.

3. Tribute to Victor Fuchs.

4. Anna Keay, The Restless Republic: Britain Without a Crown, now out in the U.S.  Here is my earlier CWT with her.

5. Will OpenAI launch multimodal before Google?  (People, our very brief “AI winter” is over now!)

6. South Korea is still seriously considering nuclear weapons.

7. Amazon limits authors to self-publishing no more than three books a day.

Zero-Sum Thinking and the Roots of U.S. Political Divides

by  Tyler Cowen in

We investigate the origins and implications of zero-sum thinking – the belief that gains for one individual or group tend to come at the cost of others. Using a new survey of a representative sample of 20,400 US residents, we measure zero-sum thinking, political preferences, policy views, and a rich array of ancestral information spanning four generations. We find that a more zero-sum mindset is strongly associated with more support for government redistribution, race- and gender-based affirmative action, and more restrictive immigration policies. Furthermore, zero-sum thinking can be traced back to the experiences of both the individual and their ancestors, encompassing factors such as the degree of intergenerational upward mobility they experienced, whether they immigrated to the United States or lived in a location with more immigrants, and whether they were enslaved or lived in a location with more enslavement.

That is from a new NBER working paper by Sahil Chinoy, Nathan Nunn, Sandra Sequeira, and Stefanie Stantcheva.

How AI will change student evaluation

by  Tyler Cowen in

That is the topic of my latest Bloomberg column, here is one excerpt:

The main point is that grades will come to mean something different. Traditionally, at least in theory, grades have been a measure of how well a student understands the material. If they got an A in US history, presumably they could identify many of the founders. In the future, an A will mark a kind of conscientiousness: It will mean that, at the very least, they applied their AI consistently to the questions at hand. Whether that counts as “cheating” or “allowed” will depend on the policies of the relevant educational institution, but anti-AI software is not reliable and anti-AI rules cannot be enforced very readily.

“Applied their AI consistently” might sound unimpressive as a certification. But I have known many students over the years who don’t meet even that standard. They may neglect to hand in homework or fail to monitor due dates. They may or may not know the relevant material — often they do not — and it is not at all clear to me that current AI technology will automatically enable them to get good grades.

In other words, an academic system replete with AI is still is testing for something, even if it is much less glorious than what we might have hoped for. Over time grades will come to indicate not so much knowledge of the material as a student’s ability to be organized and prepared.

The remainder of the column considers other possible changes, including greater reliance on oral exams and work done in class.

Is this about the poll or about the people? (model this)

by  Tyler Cowen in

EU May Ban Payments for Milk, Sperm and Blood

by  Alex Tabarrok in

BrusselsSignal: The European Parliament has approved a draft regulation banning payments for breast milk, sperm, blood and other “substances of human origin” (SoHO).

Billed as an attempt to increase safety across the bloc, the ban allegedly aims to ensure that those who are financially disadvantaged within the bloc are not subject to undue pressure to donate their cells and bodily fluids.

Hmmm. Why not ban the sale of labor to protect financially disadvantaged labor donors from undue pressure? Indeed, why not require that dangerous jobs like mining pay low wages so we can be sure that no one is induced to do these jobs by financial pressure?

More prosaically, the European Union falls short of producing all the blood plasma it needs to meet its demand for life-saving medicine. Consequently, the European Union depends on imports—primarily from compensated donors in the United States—to address its plasma deficit. Should the proposed EU legislation be enacted, the deficit is likely to get worse because Germany, Austria, Hungary, and the Czech Republic, currently permit financial compensation. Indeed the U.S. and these EU countries together account for 90% of the global plasma supply. A ban on paid donations within the EU will thus decrease the quantity of plasma supplied from Germany, Austria, Hungary, and the Czech Republic and force the EU to rely even more on imports from the US.

The US is also the world’s biggest exporter of human sperm because US sperm donors can be compensated and remain anonymous (depending on the state). US donors are also carefully screened for quality, in part due to US regulations and in part due to market demand for information about the donors. Denmark is also a major exporter of sperm, in part because it, too, allows financial incentives to donors. Reduced donations from Denmark will make the European Union increasingly dependent on U.S. sperm supplies. Indeed, after Canada banned paid sperm donors in 2004, the supply of Canadian donors plummeted to just 35 (!) and US sperm exports to Canada increased. Unintended consequences, eh?

Creating EU wide standards for testing of blood, sperm and breast milk to allow greater flows across borders is a good idea. Shortages of baby formula in the US, for example, led to a valuable increase in breast milk donations and sales but it would probably be better if more breast milk donations went through a qualified milk bank rather than through Facebook (and the same is also true for sperm banks and sperm donations). But there is no call for banning paid donation.

Paying donors of blood, sperm and breast milk is an ethical way to increase the quantity supplied and it can be done while ensuring that the donations are high-quality and safe.