PDUFA
PDUFA, the Prescription Drug User Fee Act, is a shining example of a Pareto optimal policy innovation. First passed in 1992 the act was essentially a deal between the drug manufacturers and the FDA that said we, the manufacturers, are willing to pay an extra tax for submitting new drug applications to the FDA so long as the tax is earmarked for hiring more FDA staff to accelerate new drug review.
Critics of PDUFA claim that it has reduced safety and made the FDA a "servant of industry." It’s true that to avoid conflicts of interest it might have been better had Congress funded the FDA at optimal levels but when has Congress ever done anything optimally? Prior to PDUFA millions of dollars in pharmaceutical
investment was regularly being held in limbo for want of a much cheaper FDA reviewer.
A new working paper from Tomas Philipson and co-authors presents the most sophisticated cost-benefit analysis of PDUFA. They find that PDUFA did increase manufacturer profits and reduce FDA review times. Moreover, they find no evidence that safety declined under PDUFA. Most importantly faster review times meant big gains for consumers which they evaluate as equivalent to savings of 180 to 310 thousand life-years.
Ugly Criminals
Mahalanobis points us to Ugly Criminals:
Using data from three waves of
Add Health we find that being very attractive reduces a young adult’s (ages
18-26) propensity for criminal activity and being unattractive increases it for
a number of crimes, ranging from burglary to selling drugs. A variety of tests
demonstrate that this result is not because beauty is acting as a proxy for
socio-economic status. Being very attractive is also positively associated with adult
vocabulary test scores, which suggests the possibility that beauty may have an
impact on human capital formation. We demonstrate that, especially for females,
holding constant current beauty, high school beauty (pre-labor market beauty)
has a separate impact on crime, and that high school beauty is correlated with
variables that gauge various aspects of high school experience, such as GPA,
suspension or having being expelled from school, and problems with teachers.
These results suggest two handicaps faced by unattractive individuals. First, a
labor market penalty provides a direct incentive for unattractive individuals
toward criminal activity. Second, the level of beauty in high school has an
effect on criminal propensity 7-8 years later, which seems to be due to the
impact of the level of beauty in high school on human capital formation,
although this second avenue seems to be effective for females only.
Lord of War
I was an equal opportunity merchant of death.
That’s arms dealer
Yuri Orlov played by Nicolas Cage in Lord of War, an ironic portrait of the arms trade in the late twentieth century. More history, politics and economics than I expected, this is not an action/adventure movie. Recommended. Not surprisingly there are some violent scenes.
Four sentences from Ed Glaeser
Decades of public housing projects should have taught us that the federal government is not a good real estate developer.
If this law is passed, billions will be spent on outlays that will
create only the slightest benefit to those Katrina hurt most.…bizarrely, the report spends as much space on a light rail system as it does on levees.
and the sad topper:
…we are in danger of doing a far worse job rebuilding New Orleans than rebuilding Baghdad.
The whole thing is here if you are in the mood to be depressed.
Addendum: David Smith has another good post on the state of reconstruction in New Orleans.
Exporting Pollution?
Long before Larry Summers shocked the elite by suggesting that men and women might be different he signed on to a World Bank memo noting:
"I think the economic logic behind dumping a load of toxic waste in the
lowest wage country is impeccable and we should face up to it."
A number of people suggested that the US was doing just this as lower tariff barriers made it easier to export dirty manufacturing industries and import the goods. An NBER paper, however, finds no evidence for this effect. Quoting from the NBER Digest:
Imports overall grew by 318 percent during the period. But according to World Bank data that characterizes industries by their pollution intensity, imports of goods manufactured in highly polluting processes grew at a much slower rate. In other words, just as the U.S. manufacturing sector was growing while simultaneously shifting toward clean industries, the same thing was happening to our imports: they were rising, but the percentage of goods coming from polluting industries was going down. "The cleaner U.S. manufacturing composition is not offset by dirtier imports," the authors write. "Rather, the composition of imports has also become cleaner."
One reason pollution hasn’t been exported may be that the dirtier (older) industries have more political power and have resisted tariff reductions. The authors find, however, that even if one eliminated all tariffs on manufactured goods pollution would still not be exported.
It’s not that this wouldn’t be a good idea, it’s just that it so happens that poor countries don’t have a comparative advantage in producing the goods that require a lot of pollution. Of course, if we tax pollution in the United States at higher levels it will make more sense to export it – an interesting dilemma.
I want to be a Saint!
I know, I know, first I dream of becoming a dictator, now a saint. Make of it what you will. It turns out, however, that becoming a saint is a lot easier than I thought. Reuters reports that:
The Vatican may have found the "miracle" they need to put the late Pope John
Paul one step closer to sainthood — the medically inexplicable healing of a
French nun with the same Parkinson’s disease that afflicted him.
Monsignor Slawomir Oder, the Catholic Church official in charge of promoting
the cause… said the "relatively young" nun, whom he said he could not identify for
now, was inexplicably cured of Parkinson’s after praying to John Paul after his
death last April 2…." (italics added).
A surprisingly frank report in Catholic World News hits the nail on the head:
Last
November, in commenting on the progress of the cause for Pope John
Paul’s beatifiction, his former secretary, Archbishop Stanislas
Dziwisz, said that there would be no problem finding a miracle to
advance the cause– or rather, that the problem would be to select one
miracle from among the many reported.
Indeed. I would be more impressed, however, if the cure rate of those who prayed to John Paul exceed that of those who prayed to Elvis. Will the Vatican be performing a t-test? I suspect not.
In anycase, to get my candidacy for sainthood going would you please ask in my name for something good to happen to you today. Go on, what have you go to lose? "In the name of Alex Tabarrok I pray that my article will be accepted by the AER." Try it out! If something good does happen please note the miracle in the comments section. Do not comment if nothing happens. Thanks!
Shopping in 1975
Don Boudreaux goes shopping in a 1975 Sears catalog.
Sears’ lowest-priced 10-inch table saw: 52.35 hours of work
required in 1975; 7.34 hours of work required in 2006.Sears’ lowest-priced gasoline-powered lawn mower: 13.14 hours
of work required in 1975 (to buy a lawn-mower that cuts a 20-inch swathe); 8.56
hours of work required in 2006 (to buy a lawn-mower that cuts a 22-inch swathe.
Sears no longer sells a power mower that cuts a swathe smaller than 22
inches.)Sears Best freezer: 79 hours of work required in 1975 (to buy
a freezer with 22.3 cubic feet of storage capacity); 39.77 hours of work
required in 2006 (to buy a freezer with 24.9 cubic feet of storage capacity;
this size freezer is closest size available today to that of Sears Best in
1975.)Sears Best side-by-side fridge-freezer: 139.62 hours of work
required in 1975 (to buy a fridge with 22.1 cubic feet of storage capacity);
79.56 hours of work required in 2006 (to buy a comparable fridge with 22.0 cubic
feet of storage capacity.)Sears’ lowest-priced answering machine: 20.43 hours of work
required in 1975; 1.1 hours of work required in 2006…
In an earlier post Don writes:
Other than the style differences, the fact most noticeable from the contents of
this catalog’s 1,491 pages is what the catalog doesn’t contain. The Sears customer in 1975 found no CD players for either home or car; no DVD or
VHS players; no cell phones; no televisions with remote controls or
flat-screens; no personal computers or video games; no food processors; no
digital cameras or camcorders; no spandex clothing; no down comforters (only
comforters filled with polyester).
The past is another country. I once lived there but have no desire to return.
Why I never believed James Frey
I never believed James Frey because of the Economic Way of Thinking – I refer of course to Paul Heyne’s book and not just the method. In one of the chapters of the EWT, Heyne covers basic public choice. Business people are always lobbying the government to regulate their rivals and when they do so they always have a public-interest story to sell. Heyne, however, cautions skepticism. One of his examples, is about veterinarians who lobbied the government to crack down on unlicensed canine tooth cleaners because, the veterinarians argued, unlicensed cleaners might subject the dogs to unnecessary pain. Heyne replies (I quote from memory) "Now, if you were cleaning a dog’s teeth would you subject it to unnecessary pain?"
Frey’s story about undergoing two root canals without drugs was obviously false. Not because such pain cannot be endured but because no dentist is going to risk his fingers in the mouth of someone who hasn’t had an anesthetic.
Follow the Money
Where’s George? is a website that lets users track dollar bills. Scientists at the Max Planck institute have used the data from the website to develop an improved model of human movement that can be used to better predict the spread of infectious diseases. More here.
On the evolution of religion
Consider the following sayings from two prophets of different religions:
It is easier for a camel to pass through the eye of a needle than for a rich man to enter the kingdom of God.
An honest merchant has a guaranteed place in paradise.
Now if you had to predict, which religion would you suspect would be more compatible with markets and modernity?
The first quote, of course, is from Jesus the second is a saying attributed to Muhammad.
My point is not to argue that Christianity or Islam are either more or less compatible with capitalism or liberal democracy. In my view all religions of reasonable age and numbers contain traditions and teachings compatible with modernity and all religions of reasonable age and numbers contain traditions and teachings incompatible with modernity. Call it the completeness theorem.
It’s how religions adapt and evolve to modernity that is important. Religions are constantly changing, emphasizing certain features, downplaying others, creating new interpretations. Given enough time, I believe that any religion will evolve towards compatability with modernity because it’s the memes that combine modernity and religion which will survive and prosper.
The problem is that Christianity has had hundreds of years to adapt itself to modernity while Islam has had modernity thrust upon it.
Fish don’t walk overnight and neither do religions. Nevertheless there are Islamic leaders who, under the pressure of current events, see the direction in which Islam must move and who are actively encouraging evolution in that direction. Dan Drezner, for example, points to this article on developments in Morocco:
Morocco’s
42-year-old King Mohammed VI has discovered religion as a means of
modernizing his society — and progress through piety seems to be the
order of the day. By granting new rights to women and strengthening
civil liberties, the ruler of this country of 30 million on Africa’s
northern edge, which is 99 percent Muslim, plans to democratize Morocco
through a tolerant interpretation of the Koran.Morocco’s
350-year-old dynasty, the world’s oldest next to the Japanese imperial
dynasty, claims to be directly descended from the prophet Mohammed. And
as "Amir al-Muminin," or leader of the faithful, the country’s ruler
enjoys absolute authority.The Conseil Supérieur des Oulémas, or
council of religious scholars, which the king installed a year and a
half ago, has been issuing fatwas on the most pressing questions of the
21st century — and, surprisingly, they’ve been well-received by both
young people and hardened Islamists. If the king’s reform plan
succeeds, Morocco could become a model of democratic Islam.
Addendum: For more on Islam, markets and democracy see the Minaret of Freedom Institute.
Comments are open.
The security and productivity of farms
Nick Szabo has a superb post about the interaction between historical agricultural productivity and security. Most obviously, security increases the incentive to invest so agricultural productivity will increase with security. But what determines security? Geographic factors are one possibility:
…two large islands which have been largely or entirely protected from
invasion for hundreds of years, Japan and Britain, also had among the
highest agricultural productivities per acre during that period as well
as the greatest cultivation of even marginal arable lands…. Contrariwise, this theory predicts agricultural productivity
will be lowest in unprotected continental regions. Indeed, interior
continental regions easily reached by horse tended to be given over to
much less productive nomadic grazing. Security constraints were
probably what prevented any sort of crop from being grown.
Security issues influence and can be influenced by a wide variety of other choices and institutions. Some crops will recover from a razing quicker than others, for example, so crop choice will be influenced by security. Primogeniture may have been an optimal institution to maintain economies of scale in land defense, as Adam Smith first discussed.
Read the whole thing there is a dissertation or two here.
Do you love cats?
Toxoplasma gondii is a favorite parasite of evolutionary biologists because it has an incredible property. The parasite lives in the guts of cats where it sheds eggs in cat feces that are often eaten by rats. Now how to get back from the rat to the cat? Amazingly, Toxoplasma gondii infects the brains of rats making them
change their behavior in a subtle way that increases the genetic
fitness of the parasite. Toxoplasma makes the infected rats less scared of cats and so more likely to be eaten!
Now here is the kicker. Toxoplasma gondii also infects a lot of humans.
Would I be a Good Dictator?
The train from Casablanca to Marrakech is packed, I stand at the window and look out at the land; the land is rich but the people are mostly poor (GNI per capita of around $4200 in PPP adjusted terms). If I were in charge would it be different? Would I make a good dictator? My good friend Bryan Caplan says yes! My good friend Tyler Cowen is not so sure. The question is not really about me, of course, the question is about what sorts of constraints are holding back poor countries. Is it constraints about ideas, political/social constraints or even deeper geographic constraints? Could one person at the top make a difference?
The great man theory of history, receives some interesting support in a paper just published in the QJE by Jones and Olken, Do Leaders Matter? National Leadership and Growth Since World War II. Jones and Olken look at changes in economic growth around the time of the natural or accidental deaths of leaders and they find that leaders matter, especially, as one might expect, in dictatorships. A one standard deviation increase in leader quality leads to a huge increase in economic growth, an extra 1.5 percentage points a year.
It’s much easier to ruin a nation than build one, however, so the effect of leader quality on growth says less about how good a dictator I would be than about how bad a dictator were say Mao, Mugabe, and Amin, call it the great evil man theory of history.
Still, if you are a poor country eager for a better biography, email me and we can talk terms.
Economists at lunch
Today we auctioned off the rights to the leftovers. The winner basically paid the tip so all went home happy.
Bargaining in the Souk
Bshhal? (How much?), I say, pointing to an objet d’art.
He gives a figure.
La?! (No?!), in mock shock at the price he has quoted. Bezzaf! (Expensive!)
How much you pay?
I get out a small pad of paper and pen (invaluable in the souk) and write a much lower figure.
Now it is his turn to be "shocked," handmade, silver, he says launching into a spiel.
We bargain some more back and forth. The call to prayers starts in the background, he says, "listen, good sign."
I say, yes but for which one of us? He laughs. I am not budging much on the price so he tries to distract me with a less valuable piece.
C’est la ou rien, I reply. For some reason the use of English, Arabic and French is not confusing.
Then he says "you give me maximum price, top, price serioux."
La, I reply, you give me minimum price, price serioux.
He laughs. You professor?
Now, I am shocked. Yes, how did you know?
I smelt it, he says touching his nose. "Everywhere professors have good eye but no money."
I seize an unexpected advantage, na’am (yes) no money.
We bargain some more and come to a deal. I ask for my pen back. He says no, small gift, small gift, mon amis.
Twenty dirhams!, I reply.
Professor, you must be Berber.
I laugh. He keeps the pen.
Addendum: If you go, ask for mon amis Rashid at Zemouri Ahmed Belhaj in the Souk. Tell him that the Professor, day after Christmas, sent you. He says he will remember.