The $800 million dollar pill?
The research by DiMasi et al. showing that the cost of the average new drug (new chemical entity) is about $802 million dollars is controversial with many people suggesting the results were doctored. A new paper, Estimating the Costs of New Drug Development: Is it really $802m?, by two economists at the Federal Trade Commission, replicates that research using somewhat different data and they indeed find that DiMasi et al. are wrong. The average new drug does not cost $802…it costs between $839 and $868 million.
An interesting aspect of the new study is that the authors break down development costs by drug category finding that AIDS drugs, for example, cost considerably less than average. Why? The authors suggest that AIDS drugs have been regulated less severely than other drugs resulting in lower costs as well as quicker times to market.
Media Bias and Bias about Media Bias
The work on media bias and media markets by economists is really taking off. John Lott and Kevin Hassett’s paper Is Newspaper Coverage of Economic Events Politically Biased? finds that "American newspapers tend to give more positive news coverage to the same economic news when Democrats are in the Presidency than for Republicans."
Predictably, the research was trashed (read to the bottom), without argument, by some people who have a visceral reaction to the name John Lott. Those who take this position, however, have to contend with new research from different authors using different methods and different data that nevertheless find similar results.
Riccardo Puglisi, for example, is an LSE graduate student out on the market this year. One of his dissertation chapters is Being the New York Times: The Political Behaviour of a Newspaper. Here is the abstract:
I analyze a dataset of news from the New York Times, from 1946 to 1994. Controlling for the incumbent President’s activity across issues, I find that during the presidential campaign the New York Times gives more emphasis to topics that are owned by the Democratic party (civil rights, health care, labor and social welfare), when the incumbent president is a Republican. This is consistent with the hypothesis that the New York Times has a Democratic partisanship, with some watchdog aspects, in that it gives more emphasis to issues over which the (Republican) incumbent is weak. Moreover, out of the presidential campaign, there are more stories about Democratic topics when the incumbent president is a Democrat.
Brain Immaturity
By most physical measures, teenagers should be the world’s best
drivers. Their muscles are supple, their reflexes quick, their senses
at a lifetime peak. Yet car crashes kill more of them than any other
cause — a problem, some researchers believe, that is rooted in the
adolescent brain.A National Institutes of Health study suggests that the region of
the brain that inhibits risky behavior is not fully formed until age
25, a finding with implications for a host of policies, including the
nation’s driving laws.
The results are interesting if a tad obvious. I am bothered, however, by how much of this type of research is suffused with a normative bias. Why is taking risks always connected with brain immaturity? Why not say brain atrophy makes people stodgy and boring? Could it be that the researchers are not teenagers?
This results also leads me to wonder about all those experimental economics studies done on university students.
Thanks to Carl Close for the pointer.
Markets in Everything
Name a monkey species. My choice? Minimums Novo.
Schelling is owed an apology (Lomborg too)
John Quiggin writes that "The wheels are coming off Bjorn Lomborg’s attempt to undermine the Kyoto Protocol," citing an Economist article for indicating that some members are dissenting and reiterating his claim that the Copenhagen Consensus was rigged against climate change. Methinks it is Quiggin who has prejudged the issue.
In his earlier article Quiggin complained that the panel and the climate change opponents were rigged. In particular he noted:
[T]he members of the Copenhagen panel were generally towards the right and, to the extent that they had stated views, to be opponents of Kyoto. Indeed, Lomborg’s argument that spending to mitigate climate change would be better directed to aid projects was first put forward by Thomas Schelling, one of the Copenhagen panellists.
Now consider what the Economist article has to say. True, it notes, "Now, some members of the Consensus are dissenting." Who you might ask? Why it’s…Thomas Schelling!
Again from the earlier article, Quiggin attacked the opponents of the climate change paper writing:
The same lack of balance was evident in the selection of ‘opponents’. For Robert Cline’s paper on climate change, Lomborg picked vigorous opponents of Kyoto, Robert Mendelsohn and Alan Manne, and the result was an acrimonious debate.
But who does Quiggin have the temerity to cite as another dissenter? Why it’s… Robert Mendelsohn!
Quiggin doesn’t explain why Mendelsohn and Schelling are offering their (mild) dissent – it’s not because they are in favor of spending lots of money on global warming. Rather, it’s because they think that the author of the climate change chapter, William Cline, exagerates the costs of global warming and proposes far too costly solutions.
Thus, believe it or not, the new theory of how Lomborg rigged the climate change study is that he chose someone to write the global climate change chapter who was too strong an proponent of its importance! Give me a break.
Bottom line is that the the so-called dissent reinforces the Copenhagen Consensus which is that modest steps to combat global warming may be justified (Mendelsohn proposes an initial carbon tax of $2 to Cline’s $150) but that there are many other more worthwhile development goals.
Budget Asymmetry
The Bush budget looks pretty good but lets keep things in perspective. My prediction is that it will be easier to add $540 billion in Medicare spending than it will be to cut $5 billion in farm subsidies.
Brain Drain at the NIH?
Last week the NIH announced drastic new rules restricting employees, and their spouses and dependents, from stock holdings in drug, biotech and other companies with significant medical divisions. Consulting, lecturing and other outside income is also severely restricted. Even most prizes and awards with money are now forbidden (the Nobel is an exception). NIH employees are furious.
Word on the street is that universities, including GMU, are receiving a flood of applications from talented scientists. (Perhaps the NIH should have consulted with some economists who might have explained the concepts of opportunity costs and compensating differentials).
No doubt there were some conflicts of interest and some abuses but there were also virtues in the old system. The free flow of scientists to and from commercial and government research is a key part of what made Washington and Maryland’s biotech sector succesful. Moreover, as Steve Pearlstein notes, it wasn’t that long ago that this free flow of people, ideas and money was encouraged, precisely in order to get the scientists out of their ivory tower and into the real world of medical need. Expect less from the NIH in the future.
Is HOPE a virtue?
In response to middle-class anxiety about college costs, states have dramatically increased funding for "merit-based" scholarships. Georgia’s HOPE program (Helping Outstanding Pupils Educationally), begun in 1993, is the model. HOPE covers tuition, fees and book expenses for any high-school graduate earning a B average.
David Mustard, who spoke here last week, and co-authors have written a series of papers asking in effect, Is HOPE a virtue? Predictably, high-school GPAs increased markedly after 1993 with a pronounced spike at B. SAT scores, however, did not increase so grade inflation, not academic improvement, appears to be the cause. Once in college students must maintain a B average to keep their scholarship – the program is rather lax on how many or what courses must be taken however. The result is that scholarship students take fewer classes, take easier classes and when the going gets tough they withdraw more often. Apparently HOPE comes at the expense of fortitude.
HOPE increases the number of students enrolled in GA colleges only modestly and the bulk of the increase comes from students who are induced by the cash to stay in GA, instead of going to school in another state, rather than from students who, without HOPE, would never have gone to college. What do the students do with the cash they save on tuition? Cornwell and Mustard (2002) find that car registrations increase significantly with county scholarships!
Bottom line: HOPE is neither charitable nor prudent. The bullk of the money is a simple transfer to students and their parents. To the extent that HOPE has incentive effects these appear to reduce not increase educational effort and achievement.
Tyler and the Global Cultural War
Tyler is in Paris again, a major player in what the NYTimes calls a global cultural war.
The idea of promoting cultural diversity around the world seems reasonable enough. It recognizes that everyone profits from the free flow of ideas, words and images. It encourages preservation of, say, indigenous traditions and minority languages. It treats the cultures of rich and poor countries as equal. And most topically, it offers an antidote to cultural homogeneity.
Try turning this seemingly straightforward idea into an international treaty, though, and things soon become complicated. Since October 2003, Unesco’s 190 members have been working on what is provisionally called the Convention on the Protection of the Diversity of Cultural Contents and Artistic Expression. It is intended to be approved by consensus this fall, but don’t count on it. There is still no agreement on its final name.
But that is a minor issue compared with more fundamental differences. Led by France and Canada, a majority of countries are asserting the right of governments to safeguard, promote and even protect their cultures from outside competition. Opposing them, a smaller group led by the United States argues that cultural diversity can best flourish in the freedom of the globalized economy.
A bid to break the deadlock is now under way at the Paris headquarters of Unesco…
Tyler will continue to blog from Paris but we are also pleased to be joined this week by our returning guest, Fabio Rojas.
I am not a number!
The libertarian in me thinks this amusing advert portrays a dystopia, but the economist in me sees the efficiency advantages. In the end I come down on the side of "screw efficiency, give me liberty!" But I am torn and fail to see the principles which will resolve my unease.
Modeling Intellectual Property
For over half a century, kits have been sold that enable military history
buffs to assemble scale models of military ships, aircraft and vehicles. But
that era is coming to an end, as the manufacturers of the original equipment,
especially aircraft, are demanding high royalties (up to $40 per kit) from the
kit makers….Models of a company’s products are considered the
intellectual property of the owner of a vehicle design. Some intellectual
property lawyers have pointed out that many of these demands are on weak legal
ground, but the kit manufacturers are often small companies that cannot afford
years of litigation to settle this contention.
That’s from James Dunnigan. Dunnigan points to an ironic unintended consequence of this use of intellectual property law. To avoid the levies kit manufacturers are turning to items for which there is no royalty – items like aircraft from Nazi Germany.
Thanks to Cory Doctorow at BoingBoing for the pointer.
The Fountainhead
If ethics is about the virtuous man then politics is about the social requirements for the virtuous man to exist (the modern literature lags behind Rand in connecting ethics and politics). One can understand Rand’s novels as an extended disquisition on virtue ethics and the political and social requirements necessary to practice such an ethics. In particular, she argued that rights, a legal concept creating a protected sphere for independent action, were a necessary condition to live a life of virtue.
One need not buy Rand’s deductive argument that laissez-faire capitalism is the sine-qua-non of ethical action to appreciate her insights connecting the good man and good woman with the good society. Ayn Rand was absolutely right to say that capitalism requires a moral defense. Moreover, the only plausible defense must involve the virtue of selfishness. It is all too obvious that capitalism promotes and rewards self-interest and, Mandeville nothwithstanding, no defense which simply excuses this fact will succeed.
Rand’s language hasn’t done much to advance her case and indeed it has obscured areas where her insights are now widely accepted. Today, for example, you can find many books
attacking the evil of altruism. Surprised? Of course, the books don’t use those terms, instead they call it the problem of codependency (or some other such). Relatedly, it’s no accident that Hillary Clinton was once an avid Randian (recall her political career started with Barry Goldwater) because Rand is an important feminist. Rand’s portrayal of strong, independent, intelligent women is coming to be recognized as a landmark in fiction but in addition Rand’s attacks on self-sacrifice have special meaning in a culture that has long used the “caring ethic” to bind women to the service of others.
Of weaknesses there are many, most of which flow from the combination of Rand as philosopher, novelist and powerful personality. John Galt, for example, is but one instantiation of the Randian/Aristotelian virtue ethic, an instantiation which was created for a particular aesthetic purpose by a particular person. To often both Rand and her detractors have taken the instantiation for the class thereby limiting the vision.
Slippery Slopes
Ah winter, time to take the kids out sledding at the local park. Not in many communities where sledding has been banned because of liability concerns.
Rules of Just Conduct versus Social Justice
Elizabeth Anderson and other commentators misunderstand Hayek and in the process they fail to understand the sense in which market outcomes may be said to be just (Tyler comments also).
Hayek argued that the concept of social or distributive justice was "empty and meaningless." Anderson tries to use this argument, which she explains well, to suggest that any idea of libertarian or free market justice must also be empty and meaningless. Hayek, however, did not argue against rules of just conduct, "those end-independent rules which serve the formation of a spontaneous order." Among such rules may be Nozickian or Lockean rules of voluntary exchange.
It’s quite possible, for example, to be a good Hayekian and also to say that I deserve my income because it was acquired by just conduct, e.g. by production and trade.
True, it is an accidental fact that I live in a time and place where my skills are highly prized. In this sense, I do not deserve my income (i.e. my income is in part a function of things beyond my control). But I do deserve my income in the sense that it was acquired justly and to take justly acquired earnings may be an injustice.
The ol’ dollar, it’s gonna go down
Bill Gates and Warren Buffett are short the dollar.
“I’m short the dollar,” Gates, chairman of Microsoft Corp., told
Charlie Rose in an interview late yesterday at the World Economic
Forum in Davos, Switzerland. “The ol’ dollar, it’s gonna go down.”Gates’s concern that widening U.S. budget and trade deficits are
undermining the dollar was echoed in Davos by policymakers including
European Central Bank President Jean-Claude Trichet and German
Chancellor Gerhard Schroeder.The dollar fell 21 percent against a basket of six major currencies
from the start of 2002 to the end of last year. The trade deficit
swelled to a record $609.3 billion last year and total U.S.
government debt rose 8.7 percent to $7.62 trillion in the past 12
months.“It is a bit scary,” Gates said. “We’re in uncharted territory
when the world’s reserve currency has so much outstanding debt.’…Gates reflected the views of his friend Warren Buffett, the
billionaire investor who has bet against the dollar since 2002.
Buffett said last week that the U.S. trade gap will probably further
weaken the currency.“Unless we have a major change in trade policies, I don’t see how
the dollar avoids going down,” Buffett said in an interview with
CNBC Jan. 19.
Thanks to David Theroux for the pointer.