The Public Choice Outreach Conference–Limited Time Offer!

Hurry while there is still time to apply to the 2018 Public Choice Outreach Conference, a crash course in public choice for students planning careers in academia, journalism, law, or public policy will held June 9-10 in Arlington VA. Graduate students and advanced undergraduates are eligible to apply. Students majoring in economics, history, international studies, law, philosophy political science, psychology, public administration, religious studies, and sociology have attended past conferences. Speakers include Tyler Cowen, Robin Hanson, Bryan Caplan, Shruti Rajagopolan and many others.

You can find an application and more information here. If you are a professor please invite your students to apply.

The Great Leland Yeager has Passed

Leland Yeager has passed at the age of 93. Yeager was the last of that remarkable group of scholars–including Buchanan, Tullock, Coase, Nutter–that made Virginia political economy. Yeager was a polymath perhaps best illustrated by The Yeager Mystique an appreciation by William Breit, Kenneth G. Elzinga and Thomas D. Willett written some twenty years ago (quoted below). His work on monetary theory and international monetary relations remain of great value today.

His facility with languages was legendary:

Another doctoral student, the president of the Graduate Economics Club, was working with Yeager (in Yeager’s capacity as Director of Graduate Studies) to bring Maurice Allais to the University of Virginia for a colloquium. Yeager passed any correspondence from Aliáis on to the club’s president for a response. The correspondence was in French.

Nonplussed by what he mistakenly considered Yeager’s challenge to him, the club’s president decided to retaliate. With the aid of a graduate student in another department, he responded to Yeager with a letter written in Sanskrit. Yeager was oblivious to the ruse. Innocently, he replied in Sanskrit, saying how pleased he was that the club’s president knew this language.

In a faculty of great teachers he was regarded as primus inter pares:

Sometimes he would invite students for a weekend at his Charlottesville residence, where he provided excellent cuisine and wine and conversations which could sometimes lead to a publishable manuscript. A fascinating instance is provided by this lucky house guest: “I happened to ask him some questions on a topic in monetary theory. Well, Leland immediately brought out his tape recorder, and for the next several hours I proceeded to ask him questions, which we then discussed fully. Every few minutes he would summarize the discussion on his tape recorder. Very early the next morning I could hear Leland typing away at his typewriter. When I got up, he presented me with 23 pages of transcript – he had typed up all that we had recorded the night before. We eventually converted that transcript into an article which was published by a major journal. I don’t think I will ever be able to duplicate the excitement I felt during that discussion with Leland into the wee hours of the night.

See Tyler’s personal remembrance below.

The role of ideological change in India’s economic liberalization

In an interesting paper, Nimish Adhia argues that in the 1980s Bollywood films began to shift from emphasizing collectivist duty towards individual happiness.

The injunction of performing one’s duty without regard to outcomes has been the basis of much of the Indian philosophical and religious discourse.

The dilemma is recurrent in Indian films…. From the 1950s to the 1980s, the dilemmas invariably resolve in favor of duty. The mother in Mother India (1956) shoots and kills her wayward son as he attempts to kidnap a woman—an action that would have been shameful for the village. “I am the mother of the entire village,” she says as she picks up the gun. As the son collapses to the ground, she wails and rushes to his side, and is shown to lament his death for the rest of her life, but the film valorizes her as “Mother India.”

But then starting with Ram Teri Ganga Maili (1986) there is a spate of films that celebrate the assertion of one’s desire. The assertion commonly takes the form of falling in love—an audacious act in a society where the sexual mores are conservative and a majority of marriages are arranged on basis of familial and community criteria. The young lovers in the big hit Qayamat se Qayamat tak (Doomsday to Doomsday, 1988) elope and endure enormous hardships on account of their families’ opposition. The families had a falling out in the past when they were neighboring landlords in the country. The demands of familial loyalty, shown to arise in this way from a feudal setup and concluding in the death of the young lovers, are condemned by the film as savage and outdated. “We are not the property of our parents,” the young man once counsels his beloved. “We need not be carriers of their legacy of hate.”

At the same time, the treatment of businessmen becomes more positive, wealth is shown as being earned rather than simply given, and the pursuit and achievement of wealth is shown to lead to happiness and pride rather than misery and spiritual death. Adhia argues that these changes helped to cause the liberalization reform beginning in the 1990s.

the ideological change is visible in the films of the 1980s, preceding the wave of liberalization starting in 1991. It lends support to the notion that the ideological change, reflected in the films as early as 1980, was a cause rather than a consequence of liberalization.

Guru, which I have called the most important free market film ever made, comes after liberalization but can be understood as in many ways the apex of these trends.

Hat tip: Prateek Raj.

Defensive Gun Use and the Difficult Statistics of Rare Events

In the mid-1990s, Kleck and Gertz (1995) estimated that in a typical year about 1.3% of US adults used a gun for self-defense against another person. Kleck and Gertz’s estimate, which came from a survey of nearly 5000 people, implied that there were millions of defensive gun uses every year.

Following Kleck and Gertz’s 1995 paper, the CDC added a question about defensive gun use to their Behavioral Risk Factor Surveillance System (BRFSS). In 1996, 1997, and 1998 the CDC asked:

“During the last 12 months, have you confronted another person with a fire arm, even if you did not fire it, to protect yourself, your property, or someone else?”

But here is the surprise. The CDC buried the question and the results. Only recently was the data discovered and made public by Kleck in a new paper.*(see addendum) So what were the results? You will perhaps now not be too surprised that the CDC’s survey supports Kleck and Gertz’s original finding, about 1% of survey respondents reported a defensive gun use, implying millions of such uses over a year.

The case isn’t closed on defensive gun use, however, because of a statistical conundrum.

The CDC asked 12,870 individuals about defensive gun use over the three samples.That’s a relatively large sample but note that this means that just 117 people reported a defensive gun use, i.e. ~1%. In comparison, 12,656 people (98.33%) reported no use, 11 people (0.09%) said they didn’t know and 86 people (0.67%) refused to answer. People answering surveys can be mistaken and some lie and the reasons go both ways. Some people might be unwilling to answer because a defensive gun use might have been illegal (Would these people refuse to answer?). On the other hand, mischievous responders might report a defensive gun use just because that makes them sound cool.

The deep problem, however, is not miscodings per se but that miscodings of rare events are likely to be asymmetric. Since defensive gun use is relatively uncommon under any reasonable scenario there are many more opportunities to miscode in a way that inflates defensive gun use than there are ways to miscode in a way that deflates defensive gun use.

Imagine, for example, that the true rate of defensive gun use is not 1% but .1%. At the same time, imagine that 1% of all people are liars. Thus, in a survey of 10,000 people, there will be 100 liars. On average, 99.9 (~100) of the liars will say that they used a gun defensively when they did not and .1 of the liars will say that they did not use a gun defensively when they did. Of the 9900 people who report truthfully, approximately 10 will report a defensive gun use and 9890 will report no defensive gun use. Adding it up, the survey will find a defensive gun use rate of approximately (100+10)/10000=1.1%, i.e. more than ten times higher than the actual rate of .1%! Those numbers are, of course, approximately what the CDC survey found which doesn’t prove that Kleck’s interpretation is wrong only that very different interpretations are also plausible.

The bottom line is that it’s good to know that the original Kleck and Gertz survey replicated–approximately 1% of adult Americans did report a defensive gun use in the 1990s–but the real issue is the interpretation of the survey and for that a replication doesn’t help.

Addendum: The paper has since been taken down perhaps because in addition to the issue of interpretation that I raised the survey may not have been national. Robert VerBruggen has further details.

The Facebook Trials: It’s Not “Our” Data

Facebook, Google and other tech companies are accused of stealing our data or at least of using it without our permission to become extraordinarily rich. Now is the time, say the critics, to stand up and take back our data. Ours, ours, ours.

In this way of thinking, our data is like our lawnmower and Facebook is a pushy neighbor who saw that our garage door was open, took our lawnmower, made a quick buck mowing people’s lawns, and now refuses to give our lawnmower back. Take back our lawnmower!

The reality is far different.

What could be more ours than our friends? Yet I have hundreds of friends on Facebook, most of whom I don’t know well and have never met. But my Facebook friends are friends. We share common interests and, most of the time, I’m happy to see what they are thinking and doing and I’m pleased when they show interest in what I’m up to. If, before Facebook existed, I had been asked to list “my friends,” I would have had a hard time naming ten friends, let alone hundreds. My Facebook friends didn’t exist before Facebook. My Facebook friendships are not simply my data—they are a unique co-creation of myself, my friends, and, yes, Facebook.

Some of my Facebook friends are family, but even here the relationships are not simply mine but a product of myself and Facebook. My cousin who lives in Dubai, for example, is my cousin whether Facebook exists or not, but I haven’t seen him in over twenty years, have never written him a letter, have never in that time shared a phone call. Nevertheless, I can tell you about the bike accident, the broken arm, the X-ray with more than a dozen screws—I know about all of this only because of Facebook. The relationship with my cousin, therefore, isn’t simply mine, it’s a joint creation of myself, my cousin and Facebook.

Facebook hasn’t taken our data—they have created it.

Facebook and Google have made billions in profits, but it’s utterly false to think that we, the users, have not been compensated. Have you checked the price of a Facebook post or a Google search recently? More than 2 billion people use Facebook every month, none are charged. Google performs more than 3.5 billion searches every day, all for free. The total surplus created by Facebook and Google far exceeds their profits.

Moreover, it’s the prospect of profits that has led Facebook and Google to invest in the technology and tools that have created “our data.” The more difficult it is to profit from data, the less data there will be. Proposals to require data to be “portable” miss this important point. Try making your Facebook graph portable before joining Facebook.

None of this means that we should not be concerned with how data, ours, theirs, or otherwise, is used. I don’t worry too much about what Facebook and Google know about me. Mostly the tech companies want to figure out what I want to buy. Not such a bad deal even if the way that ads follow me around the world is at times a bit disconcerting. I do worry that they have not adequately enforced contractual restrictions on third-party users of our data. Ironically, it was letting non-profits use Facebook’s data that caused problems.

I also worry about big brother’s use of big data. Sooner or later, what Facebook and Google know, the government will know. That alone is good reason to think carefully about how much information we allow the tech companies to know and to store. But let’s get over the idea that it’s “our data.” Not only isn’t it our data, it never was.

The Peltzman Model of Regulation and the Facebook Hearings

If you want understand the Facebook hearings it’s useful to think not about privacy or  technology but about what politicians want. In the Peltzman model of regulation, politicians use regulation to tradeoff profits (wanted by firms) and lower prices (wanted by constituents) to maximize what politicians want, reelection. The key is that there are diminishing returns to politicians in both profits and lower prices. Consider a competitive industry. A competitive industry doesn’t do much for politicians so they might want to regulate the industry to raise prices and increase firm profits. The now-profitable firms will reward the hand that feeds them with campaign funds and by diverting some of the industry’s profits to subsidize a politician’s most important constituents. Consumers will be upset by the higher price but if the price isn’t raised too much above competitive levels the net gain to the politician will be positive.

Now consider an unregulated monopoly. A profit-maximized monopolist doesn’t do much for politicians. Politicians will regulate the monopolist to lower prices and to encourage the monopolist to divert some of its profits to subsidize a politician’s most important constituents. Monopolists will be upset by the lower price but if the price isn’t lowered too much below monopoly levels the net gain to the politician will be positive. (Moreover, a monopolist won’t object too much to reducing prices a little since they can do that without a big loss–the top of the profit hill is flat).

With that as background, the Facebook hearings are easily understood. Facebook is a very profitable monopoly that doesn’t benefit politicians very much. Although consumers aren’t upset by high prices (since Facebook is free), they can be made to be upset about loss of privacy or other such scandal. That’s enough to threaten regulation. The regulatory outcome will be that Facebook diverts some of its profits to campaign funds and to subsidize important political constituents.

Who will be subsidized? Be sure to watch the key players as there is plenty to go around and the money has only begun to flow but aside from campaign funds look for rules, especially in the political sphere, that will raise the costs of advertising to challengers relative to incumbents. Incumbents love incumbency advantage. Also watch out for a deal where the government limits profit regulation in return for greater government access to Facebook data including by the NSA, ICE, local and even foreign police. Keep in mind that politicians don’t really want privacy–remember that in 2016 Congress also held hearings on privacy and technology. Only those hearings were about how technology companies kept their user data too private.

Is Economic Research Biased by Partisanship?

The Washington Monthly, a magazine of ideas from the liberal-left, has a profile of me and my paper with Nathan Goldschlag, Is regulation to blame for the decline in American entrepreneurship? The profile ups the “libertarian says regulation not responsible for bad thing!” angle. My earlier paper, finding that more guns leads to more suicides, was also given the “even a libertarian says” angle. In both cases, I was treated fairly and well and since I wrote the papers to be read, I am happy for the publicity. But I am uncomfortable with these takes.

After all, I am not surprised that my research is not biased by partisanship. Why should other people be? Should I not be insulted? Moreover, I don’t think that I am special in this regard. I think that most academic research in economics is not biased by partisanship. Thus, while it’s nice to receive plaudits on twitter for honesty and bravery, they are undeserved. This is normal. Normal for me and normal for other economists. The public perception to the contrary likely comes from two failures–a failure to distinguish partisan commentary from academic research and a failure to consider that ideology influences topic more than findings.

Economic commentary in the media often does come from political partisans but that is a completely different role than publishing peer-reviewed research. Papers published in mainstream economics journals have passed a high bar and are much less likely to be infused with partisan bias–this is true even when the research leads to a blog post or op-ed that may be of partisan interest.

An economist’s ideology probably does influence the topics they choose to research. I’ve written on bounty hunters, privateers, and the private provision of public goods, topics surely influenced by my interest in how markets solve problems usually thought solvable only by governments. Choice of topic, however, does not necessarily determine the outcome. In the aforementioned three cases, my research can be read as broadly supportive of private solutions. The topics of dynamism and regulation, firearms and suicides, and private cities in India were probably also influenced by ideology but in these cases the research can be read as somewhat less supportive of private solutions.1 Let the chips fall where they may. I’ve learnt something in both sets of cases. My academic ideology, “a demand to know the truth,” trumps any narrow political ideology.

There’s another problem with praising a “libertarian”, or any researcher with strong beliefs, for honesty when their research conclusions don’t fit narrow priors. It puts their research that does fit narrow priors under a cloud. But only people with strong beliefs are put to this test. No one gets suspicious when a moderate democrat produces lots of research that fits moderate democrat priors. Why not? Do you assume reality is moderate?

I also wonder whether the people lauding me for my honest research–for which I thank them–will draw the correct conclusion. Namely, they should now be more receptive to my work on bounty hunters, privateers, and the private provision of public goods. Fingers crossed.

Let me conclude on a lighter note. There are many reasons why regulation could be costly outside of its effects on dynamism. Thus, for my friends who think that I have gone all-squishy, n.b.:

Not that Tabarrok himself has become a booster for regulation. He doesn’t think much of government’s ability to spark innovation through setting standards; the first thing he did when he last bought a new shower head, he said, was remove its federally mandated flow restrictor.

Read the whole thing.

Addendum 1: I have also written many papers like Would the Borda Count have Avoided the Civil War? and Patent Theory versus Patent Law where the topic was driven out of some non-ideological interest or simply because I had an idea. Publish or perish!

What is Skim Milk? The FDA versus Dairy Farmers

FDA food regulation isn’t as high stakes as FDA drug regulation but it can be both costly and absurd. A case in point. The FDA controls how foods are labeled with the goal of ensuring that they are “properly” labelled. It’s important that consumers not be misled but what does one say, for example, about soy milk? Is that label proper? (The FDA so far has declined to rule on that issue but the “Defending Against Imitations and Replacements of Yogurt, Milk, and Cheese To Promote Regular Intake of Dairy Everyday Act (DAIRY PRIDE) act may force their hand.)

The FDA’s control over labeling is more powerful than it appears because it can be used to define what a product is. The FDA, for example, can’t force milk producers to add vitamins to milk but by defining milk as including certain vitamins they can say that milk without these vitamins is mislabeled! This is exactly the case with dairy farmer Randy Sowers and South Mountain Creamery. South Mountain Creamery sells skim milk, i.e. milk with the fat skimmed off. The FDA, however, wants skim milk to contain as many vitamins as whole milk so they define skim milk as including vitamin A and D. If farmers want to sell skim milk and call it “skim milk” they have to add vitamins. To avoid prosecution the FDA is requiring South Mountain Creamery to label their skim milk, “imitation skim milk”! Yes. War is Peace. Freedom is Slavery. Real Skim Milk is Imitation Skim Milk. Sowers and the Institute for Justice are suing on First Amendment Grounds.

The FDA has a history of losing First Amendment cases and will probably lose this case as well. A Federal appeals court in Florida has already ruled in a very similar case that labeling skim milk, “skim milk” is not deceptive.

Lessons from “The Profit”

I’ve learned a lot about industrial organization watching The Profit, a reality-TV show on CNBC featuring businessman Marcus Lemonis. In each episode Lemonis buys into a failing small-to-medium-sized business and works to turn it around. Lemonis doesn’t invest in a random sample of businesses nor even in a random sample of failing businesses. Nevertheless, the lessons that The Profit teaches are consistent with the new literature on management which has increased my confidence both in the show and the literature.

Image result for the profitIn the perfectly competitive model, price is equal to average cost and firms operate efficiently at minimum cost. Yet, Syverson finds that in the typical US industry a firm at the 90th percentile of the productivity distribution makes almost twice as much output with the same inputs as a firm at the 10th percentile. It’s not easy to measure inputs or outputs, of course, but even firms producing very uniform products show big productivity differences.

How can firms that use inputs so inefficiently survive? In part, competition is imperfect which gives inefficient firms a cushion because they can charge a price higher than cost even as costs are higher than necessary. Another reason is that small firms eat their costs.

A typical firm on The Profit, for example, has decent revenues, sometimes millions of dollars of revenues, but it has costs that are as high or higher. What happened? Often the firm began with a competitive advantage–a product that took off unexpectedly and so for a time the firm was rolling in profits without having to pay much attention to costs. As competition slowly took hold, however, margins started to decline and the firm found itself bailing. But instead, of going out of business, the firm covers its losses with entrepreneurs and family members who work without pay, with loans which grow ever larger, and by an occasional demand shock which generates enough surplus revenue to just keep going.

The correct metaphor for competition isn’t a boxing match that knocks out the inefficient firm. The correct metaphor is a slow tide. Inefficient firms must scramble for a bit of high ground but as the tide ebbs and flows they can occasionally catch a breath when their head bobs above the profit line. An inefficient firm can survive for years before it inevitably sinks.

The second lesson from The Profit is that management matters and it matters in systematic and fairly easy to replicate ways. If mis-measurement explained productivity differences, Lemonis would not be able to successfully turn firms around. But he can and does. How?

One of the first things Lemonis does in almost every episode is get the numbers right so he can calculate which products are selling and which have the highest price-to-cost margin. Concentrate production on high-margin, big sellers. Drop the rest. Simple; but many firms don’t know their numbers.

Second, in episode after episode, Lemonis cleans up shop. Literally. He cleans the shop floor and gets rid of inventory that isn’t selling. He then arranges the floor to improve process flow (made easier by concentrating production on fewer products). He then creates an inventory system, tracks orders and the inputs needed to create those orders, and takes advantage of costs savings through economies of scale in input purchases.

Can it be so simple? To be sure, Lemonis is a smart guy but very little of what he does takes genius. We know this because we now have robust evidence from India and Mexico that better management increases profits and productivity and that such increases can be sustained over the long run. In the studies from India and Mexico, randomly selected firms were given access to a “management intervention” and their productivity and profits improved and stayed higher for years after the intervention ended.

Moreover, what were these management interventions? Did some bright Harvard grad recommend a complicated swap-options deal? A new chemical process? A new management form? No. By and large, the interventions were simple. Just like the Lemonis interventions.

Here, for example, are some pictures of the storage systems used in the Indian textile firms which were part of the management study (from Nick Bloom’s slides). This is exactly the kind of thing one sees on the Profit and the recommendations to create an inventory control system are exactly the same. Management 101.

This is the sense in which the lessons of The Profit are consistent with the new literature on management and increase confidence in both.

Another lesson from The Profit is that firm problems are personal problems. The son who can’t step out from the shadow of the father and the father who can’t let go. The two brothers who haven’t gotten over the death of their father and the problems this creates in the firm they have inherited. The siblings who are still fighting to get their parent’s attention. If Lemonis has a genius skill it’s in keeping his temper and working through bullshit problems to get to the real festering issues that are at the root of inefficiencies.

Now, in this case, there is surely some selection going on. Personal drama makes for good television but the general point strikes me as true and correct and important. It’s difficult to run a business like a business. The analytical mindset that can separate business problems from personal problems isn’t natural. Many people cannot separate business decisions from their own preferences and emotional biases, which is one reason why great business leaders are rare.

I’ve learned a lot about IO from watching The Profit but could business people learn about running a firm by seeing more reality-TV? Robin Hanson argues:

If one can learn….from just watching the inside story of real firms over several years, that suggests a big win: record the full lives of many rising managers over several years, and show a mildly compressed and annotated selection of such recordings to aspiring managers.

I agree with Robin, Reality-TV MBAs could offer a lot of value. The Profit is a good place to start.

In Praise of Modern Principles

Writing about economics for a large audience at Marginal Revolution taught Tyler and me to get to the point quickly, use vivid examples, and avoid unnecessary math and other jargon. We brought all these lessons to our textbook, Modern Principles of Economics. We wanted to teach modern topics such as tying and bundling–pricing schemes familiar to students from cell phone plans, Cable TV and software sales yet not discussed in most principles textbooks–while recognizing that most students who take a principles course will never take another economics course. The most complicated math function in our book is the square root function.

Fortunately, judging by the reception of MP, we have succeeded in our goals. Modern Principles is used in a wide-range of universities and colleges throughout the United States, at places like the University of Pennsylvania, UCLA, and Minnesota and also Henry Ford College, Rock Valley College and the SUNY Colleges. Here are a few reactions from users of Modern Principles.

I can’t tell you how many people I have met who took economics in college, and who hated it. If only they had started with Cowen and Tabarrok. Modern Principles is one of the few books that will immerse students into the elegance and beauty of our science, and which will create a lifelong love of economics.

Lee E. Ohanian,
Professor of Economics, UCLA
and Senior Fellow, Hoover Institution
Stanford University

Cowen and Tabarrok’s Modern Principles and the accompanying videos make for an unbeatable combination for both students and instructors. The intuition is clear and the examples—both contemporary and interesting—draw students into the material. This text is a fantastic tool for showing students how economics impacts their daily lives in choices great and small. My students come to class with questions, eager to discuss in more detail the concepts covered in the videos and text.

Abigail Hall,
Department of Economics,
University of Tampa

I have tried multiple textbooks over the last ten years. None of them engage my students as well as Modern Principles by Cowen and Tabarrok. The writing is fresh and lively. The videos are clear and entertaining. It is a book that attracts students who will never take another economics course and excites economics majors.

Randy T. Simmons,
Professor of Political Economy,
Utah State University

Here’s a cool video explaining some of the features of Modern Principles.

Regression Discontinuity Works

Robert Lalonde’s famous 1986 paper, Evaluating the Econometric Evaluations of Training Programs with Experimental Data, shattered the confidence of the profession by showing that the advanced econometric techniques of the day, by and large, failed to recover the results from a randomized controlled trial. The profession has been busy since that time developing new methods and techniques.

A new paper compares regression discontinuity with RCTs and RD works very well.

Theory predicts that regression discontinuity (RD) provides valid causal inference at the cutoff score that determines treatment assignment. One purpose of this paper is to test RD’s internal validity across 15 studies. Each of them assesses the correspondence between causal estimates from an RD study and a randomized control trial (RCT) when the estimates are made at the same cutoff point where they should not differ asymptotically. However, statistical error, imperfect design implementation, and a plethora of different possible analysis options, mean that they might nonetheless differ. We test whether they do, assuming that the bias potential is greater with RDs than RCTs. A second purpose of this paper is to investigate the external validity of RD by exploring how the size of the bias estimates varies across the 15 studies, for they differ in their settings, interventions, analyses, and implementation details. Both Bayesian and frequentist meta‐analysis methods show that the RD bias is below 0.01 standard deviations on average, indicating RD’s high internal validity. When the study‐specific estimates are shrunken to capitalize on the information the other studies provide, all the RD causal estimates fall within 0.07 standard deviations of their RCT counterparts, now indicating high external validity. With unshrunken estimates, the mean RD bias is still essentially zero, but the distribution of RD bias estimates is less tight, especially with smaller samples and when parametric RD analyses are used.

How FDA-Approved Prescribing Information Lags Behind Real-World Clinical Practice

Once a drug has been approved for some use it can be legally prescribed for any use. New uses for old drugs are often discovered. When physicians learn of these new uses, prescribing practices move beyond the uses that the FDA has evaluated and permitted. In Outdated Prescription Drug Labeling, Shea et al. compare off-label uses for cancer drugs that are graded as “well-accepted” by the National Comprehensive Cancer Drugs & Biologics Compendium (NCCN) with the labelled, “FDA-approved” uses. What they find is that most drugs have multiple off-label uses that are significantly different from FDA approved uses.

Our analysis of the NCCN Compendium and FDA drug labels for 43 cancer drugs approved between 1999 and 2011 identified hundreds of off-label uses, most of which were strongly supported by NCCN expert panels.

…Additionally, of the 253 off-label uses, 165 (65.2%) were categorized as “new indications,” meaning they were in disease settings not represented on labels

In my work on off-label prescribing (and with Klein) I have emphasized that the off-label world offers a window on what the larger world would look like with much less FDA control over new drug approvals. Notice that even today it’s physicians and the private approval process, as represented by the compendia, that determine actual prescribing and payment.

We found that 4 of the 5 largest private payers, as well as Medicare, cover over 90% of uses listed on the NCCN Compendium (uses graded 1 and 2A), suggesting widespread acceptance of these uses by diverse stakeholders. While standards for FDA approval differ from standards for coverage determinations, these findings indicate that the gulf between labeled uses and covered uses may be needlessly wide.

To bring FDA labeling up to real-world practice the authors recommend “a collaboration between the FDA and the developers of clinical guidelines and drug compendia to evaluate existing evidence about approved drugs and suggest updates to labeling.” In other words, the decentralized, private approval system should be used to determine which new uses of old drugs are safe and effective and those determinations should then be adopted by the FDA. I agree. But if private practices can be used to approve new uses for old drugs, why shouldn’t similar procedures be used to approve new uses for new drugs?

What Should You Do to Make an Impact?

Suppose you want to help the world, what sort of problems should you work on? The good folks at 80,000 Hours recommend looking for big, neglected, solvable problems. Sounds obvious when written down but bringing these issues up to system-two thinking often results in changed perspectives and new approaches. The video has interesting examples.