I saw your post on the new bill, and I actually think the healthcare components of it might be worse than the rest of it.The bill has a provision that allows the government to “negotiate” prices for drugs that are among the top 10-20 by spend in Medicare Part B (physician administered, usually IV infusions) and Part D. Since drugs that are selected in one year are not eligible for inclusion in subsequent years, this will capture more and more drugs over time. The negotiation of course happens with a gun to the head—the bill sets statutory minimum discounts of anywhere between 25-60%, depending how long the drug in question has been on market. The biggest issue with the bill is that it makes small molecule drugs eligible 9 years after approval, while biologic drugs are eligible after 13 years. This is based on some silly misconception that small molecule drugs are quicker and cheaper to develop and therefore have shorter payback periods. That may have been true when we were tackling relatively low-hanging fruit like high cholesterol, but small molecule drugs that tackle unmet needs today are nothing less than miracles. An oral pill that treats cystic fibrosis, like Vertex’s Trikafta, or sickle-cell disease, like Global Blood Therapeutics’ Oxbryta, is incredibly challenging to develop. This is going to hurt returns for small molecule drugs and skew R&D efforts away from them to biologics. Biologics like monoclonal antibodies are great, but many of them carry substantial administration costs or suffer from worse compliance/adherence because they are IV infusions that require patients to go into a care setting periodically to receive their next dose. But the real issue is they do not go generic the way small-molecule drugs do. Generics for small-molecule drugs are relatively cheap to develop, benefit from a streamlined approval process, and can be substituted for the branded drug at the pharmacy counter even if the doctor prescribes the brand, and as a result, drive 90% discounts to the brand price. Biologics, as the name suggests, are derived from living cells and thus cannot be easily proven to be equivalent to the brand—clinical trials are required and the overall expense of developing a biosimilar is 10x that of a small-molecule generic ($20M vs $200M). Between the higher development cost, lack of automatic substitution, and doctor and patient reluctance to believe these biosimilars are identical to the brand, biosimilars discount the brand price less and take a smaller share of the market, resulting in smaller savings to the system. It gets worse—many drugs these days are a “pipeline in a product,” targeting a biological mechanism that is implicated in many diseases. The most famous example might be Humira, which began as a rheumatoid arthritis drug and added psoriasis, psoriatic arthritis, ulcerative colitis, Crohn’s disease, ankylosing spondylitis, and hidradenitis suppurative over time, running trials to prove efficacy in each. Humira is a complex example—patent evergreening extended its lifetime and justified the investment in expanding its approved indications, and on a societal basis, it’s hard to know whether that’s good or bad, but hopefully we can agree that the solution to an IP issue is not to create an artificial time of expiry that discourages investment in science. The bill also includes an exemption through 2028 for orphan drugs that are approved in only one indication—these are drugs that target very rare diseases and generally charge extremely high prices to be financially viable. Some of these drugs are eventually tested in and expand to other smaller indications—but this exemption would discourage that and create an incentive to only try the drug in the largest indication and not expand the label to maintain the exemption and maximize its lifespan. Moreover, small companies that derive at least 80% of their revenue from one drug get a partial exemption from this, rendering them unacquirable by a larger drug company, since the drug is worth more as a standalone asset. This is again a failure of incentive design—it forces replication of corporate and commercial infrastructure that would otherwise have been a source of cost synergies for an acquirer. An example of the orphan disease issue is a drug called mavacamten, that Bristol-Myers acquired for $13.1B (it was the main asset of a company called Myokardia). The development plan was to first test the drug in an orphan indication, obstructive hypertrophic cardiomyopathy (oHCM), then expand to non-obstructive HCM, and eventually to a broader non-orphan heart failure market. This is a small-molecule drug, so negotiation eligibility is 9 years after launch in oHCM, or 2031–this would leave only 5-6 years for commercial launch in the heart failure market. While it probably makes sense for BMS to go ahead and test this molecule in heart failure at this point, the NPV of the molecule would be materially lower assuming a 25% discount to Medicare prices at year 9. The investment bank Jefferies estimates it at a 19% haircut—$10.6B from $13.1B. If the discount is deeper and/or spills over to commercial reimbursement, the haircut gets steeper and steeper—this overhang will reduce the number of drugs developed and/or force ever-higher launch prices since more of the value of the molecule has to be generated from the first indication. Lastly, this encourages even more gaming of the system. In theory, authorizing a generic competitor at a small discount at 9 or 13 years would protect the branded drug, as drugs with generic/biosimilar competition are exempt from negotiation. Handing the rights to produce a 10% cheaper version of your drug to Teva or Sandoz could therefore be less costly than the government’s proposed price cuts. This is sadly the story of our entire HC system—poor incentive structures layered on top of each other in an increasingly wobbly manner rendering the whole system unfit for purpose and on the verge of collapse. I should note here that this also targets one of the few industries where the US is still the undisputed global leader—can we really afford to do that? Especially when pharmaceuticals are less than a fifth of US HC spend, and the real drivers of out-of-control healthcare spending are guilds like the AMA and local monopolies (hospital systems that have consolidated heavily and are the largest employers in many congressional districts and even states, giving them both outsize negotiating power against insurers and lobbying clout in Congress).
That is from Anonymous!
For much of the midterm campaign, Democrats have grappled with how to define their message, weighing slogans like “Democrats deliver” and “Build back better,” and issuing warnings against “ultra-MAGA” Republicans.
Now, a coalition of progressive organizations has settled on what its leaders hope will be a unified pitch from the left. This November, they plan to argue, Americans must vote to protect the fundamental freedoms that “Trump Republicans” are trying to take away.
That pitch is the product of a monthslong midterms messaging project called the “Protect Our Freedoms” initiative, fueled by polling and ad testing.
The move is the latest evidence that Democrats at every level of the party and of varying ideological stripes — including President Biden, abortion rights activists in Kansas and, now, a constellation of left-leaning groups — are increasingly seeking to reclaim language about freedom and personal liberty from Republicans. It is a dynamic that grew out of the overturning of Roe v. Wade in June, and one that is intensifying as more states navigate abortion bans while Republicans nominate election deniers for high office.
Here is more from The New York Times.
4. Place-based policies in the CHIPS and Science Act (don’t they usually fail? Why are investing so much in them?).
Three volumes, $281.57, totally worth it. Picture books! Asia only, the vanishing part of course. Very wide coverage of various regions, including parts of western Asia such as Georgia. And yes this is the same Kevin Kelly who is a Hayekian, tech commentator, and much more. It is thus one of the most conceptual picture books, noting the text is minimal and descriptive.
And it is not just the usual stuff, such as amazing old buildings or vistas of rice paddies and brightly colored festivals. Kelly is not afraid to hit you with 40 door photos in a row, all lined up in neat little rows.
Might this be one of the very best picture books? Based on 9,000 photographs and 50 years of travel, 40 of them spent taking photos, and none of it was paid for by other parties. They don’t make ’em like this any more. Recommended.
p.s. One trick of the book is that a lot of this stuff hasn’t vanished at all. Note the gerund!
Here is the audio, video, and transcript. Here is part of the summary:
William joined Tyler to discuss why the movement [Effective Altruism] has gained so much traction and more, including his favorite inefficient charity, what form of utilitarianism should apply to the care of animals, the limits of expected value, whether effective altruists should be anti-abortion, whether he’d would side with aliens over humans, whether he should give up having kids, why donating to a university isn’t so bad, whether we are living in “hingey” times, why buildering is overrated, the sociology of the effective altruism movement, why cultural innovation matters, and whether starting a new university might be next on his slate.
And an excerpt:
COWEN: Of all the inefficient things, which is the one you love most?
COWEN: If we’re assessing the well-being of nonhuman animals, should we use preference utilitarianism or hedonistic utilitarianism? Because it will make a big difference. We’re not sure all these animals are happy. They may live lives of terror, but we’re pretty sure they want to stay alive.
MACASKILL: It makes a huge difference. I think the arguments for hedonism as a theory of well-being, where that saying that well-being consists only in conscious experiences — positive ones contribute positively, negative conscious experiences contribute negatively — I think the arguments for that as a theory of well-being and the theory of what’s good are very strong. It does mean that when you look to the lives of animals in the wild, my view is it’s just very nonobvious whether those lives are good or not.
That’s me being a little bit more optimistic than other people that have looked into this, but the optimism is mainly drawing from just lack of — I think we know very little about the conscious lives of fish, let alone invertebrates. But yes, if you have a preference satisfaction view, then I think the world looks a lot better because beings, in general, want to keep living.
Actually, when we look to the future as well, I think if you assess how good is the future going to be on a hedonist view, well, maybe it’s quite fragile. You could imagine lots of future ways that civilization could go, where they just don’t care about consciousness at all, or perhaps the beings that will, are not conscious. But probably, beings in the future will have preferences, and those preferences will be being satisfied. So, in general, moral reality looks a lot more rosy, I think, if you’re a preference satisfactionist.
COWEN: But it’s possible, say, in your view, that human beings should spend a lot of their time and resources going around destroying nature, since it might have negative net expected utility value.
MACASKILL: I think it’s a possible implication. I think it’d be very unlikely to be the best thing we could be doing because once —
COWEN: But there’s a lot of nature. We have very effective bombs, weapons. We could develop animal-killing weapons if we set our minds to it.
And from me:
COWEN: I worry a bit this is verging into the absurd, and I’m aware that word is a bit question-begging. But if we think about the individual level — like what do you, Will, value? — you value, in part, the inefficient. It’s very hard to give people just pure utilitarian advice, because they’re necessarily partial.
At the big macro level — like the whole world of nature versus humans, ethics of the infinite, and so on — it also seems to me utilitarianism doesn’t perform that well. The utilitarian part of our calculations — isn’t that only a mid-scale theory? You can ask, does rent control work? Are tariffs good? Utilitarianism is fine there, but otherwise, it just doesn’t make sense.
Fascinating throughout. Don’t forget Will’s excellent new book What We Owe the Future.
That is the theme of my latest Bloomberg column, here is one excerpt:
When people are forced to adjust, as happened during peak pandemic times, they learn new things. What many Americans and Westerners have learned is that they enjoy “comfort travel” as much if not more than “challenge travel.” A lot of the new habits are going to stick. Especially with group travel, the preferences of comfort travelers will tend to win out in choosing a destination.
One slightly sorry truth is that many people do not very much enjoy challenge travel, which can be stressful and almost like work. When the social and group pressures to do it are removed or lessened, challenge travel is likely to decline, although the hardcore challenge travelers will remain and perhaps even expand their ambitions.
The future for challenge travel, then, may be that it becomes both less popular and more intense. In this sense it may harken back to an earlier era of travel, where risk and difficulty were ever present and surprises were frequent.
I am posting this from Ahmedabad and headed next to Udaipur…
Wild Problems: A Guide to the Decisions That Define Us
Out this week, I am looking forward to reading my copy, you can order it here.
3. The culture and polity that is German: “darf in der SPD bleiben.”
Consequently, from a regional perspective, there are large disagreements about the welfare effects of carbon taxes: when a uniform carbon tax is imposed across all regions, with revenues redistributed locally as a lump sum so that there are no interregional transfers, some regions gain and others lose, often by large amounts that swamp the globally-averaged benefits of carbon taxes.
The microfoundations of that claim are interesting:
At the regional level, the optimal annual average temperature (at which the calibrated inverse U -shape governing how labor productivity varies with temperature reaches its peak) is approximately 12 degrees Celsius (◦C); an increase of regional temperature from 10 ◦C to 12 ◦C increases a region’s total factor productivity (TFP) by about 1%, while a further increase in annual average temperature from 12 ◦C to 14 ◦C reduces its TFP by about 2%.
Here are some bottom-line numbers on the global costs of climate change, with and without a carbon tax regime:
Without taxes global GDP reaches its nadir (relative to trend) just after 2190, when it is about 7.3% below the trend that would have obtained starting in 1990 without further global warming. With taxes, global GDP reaches its nadir just before 2190, at about 5.5% below trend.
Again, the costs of climate change are a few years of global economic growth. That is a big deal, and worth attending to, but far from an existential risk.
Here is the 160 pp. NBER working paper by Per Krusell and Anthony A. Smith Jr.
I find these results not entirely surprising:
We examine whether the ERC selected researchers with a track record of conducting risky research. We proxy high-risk by a measure of novelty in the publication records of applicants both before and after the application, recognizing that it is but one dimension of risk. We control and interact the risk measure with high-gain by tracking whether the applicant has one or more top 1% highly cited papers in their field. We find that applicants with a history of risky research are less likely to be selected for funding than those without such a history, especially early career applicants. This selection penalty for high-risk also holds among those applicants with a history of high-gain publications.
To test whether receiving a long and generous prestigious ERC grant promotes risk taking, we employ a diff-in-diff approach. We find no evidence of a significant positive risk treatment effect for advanced grantees. Only for early career grantees do we find that recipients are more likely to engage in risky research, but only compared to applicants who are unsuccessful at the second stage.
You will note that the ERC was originally intended to encourage risk-taking in science. Here is the full paper by Reinhilde Veugelers, Jian Wang, and Paula Stephan. It is good to see the economics of science making so much progress as of late.
Most economists maintain that the labor market in the United States is ‘tight’ because unemployment rates are low. They infer from this that there is potential for wage-push inflation. However, real wages are falling rapidly at present and, prior to that, real wages had been stagnant for some time. We show that unemployment is not key to understanding wage formation in the USA and hasn’t been since the Great Recession. Instead, we show rates of under-employment (the percentage of workers with part-time hours who would prefer more hours) and the rate of non-employment which includes both the unemployed and those out of the labor force who are not working significantly reduce wage pressures in the United States. This finding holds in panel data with state and year fixed effects and is supportive of a wage curve which fits the data much better than a Phillips Curve. We find no role for vacancies; the V:U ratio is negatively not positively associated with wage growth since 2020. The implication is that the reserve army of labor which acts as a brake on wage growth extends beyond the unemployed and operates from within and outside the firm.
We are the reserve army of the unemployed! Here is the full paper from David G. Blanchflower, Alex Bryson, and Jackson Spurling. The results also suggest that getting inflation under control will be easy than some alternative accounts might indicate, and in that sense this is mild cause for macroeconomic optimism, relatively speaking that is.
These ten veteran ex-Lakers from the 2021-2022 season, however, are still unemployed (ESPN).
1. The economics of lithium constraints (FT). Augmenting supply is tough, and projects can take from six to nineteen years to pay off.
2. Dropbox for babies? (NYT)
3. Gideon Lewis-Kraus New Yorker profile of Will MacAskill, with a cameo appearance by the MR comments section.
6. What was the relative welfare gain from tobacco? (speculative)
Humans are living longer, better lives thanks to innovations in prescription drugs over the past three decades, according to several new studies by Frank Lichtenberg, the Courtney C. Brown Professor of Business.
Every year, according to Lichtenberg’s research, drugs launched since 1982 are adding 150 million life-years to the lifespans of people in 22 countries that he analyzed. He calculated the average pharmaceutical expenditure per life-year saved at $2,837 — a bargain, he says.
“According to most health economists and policymakers, if you could extend someone’s life by a year for less than $3,000, that is highly cost effective,” says Lichtenberg, who gathered new data for these studies to cast a never-before seen view of the econometrics of prescription drugs. “People might be surprised by how cost-effective drugs appear to be in general.”
…To tease out the answer, the professor gathered data on drug launches and the age-standardized premature mortality rate by country, disease, and year. Drawing on data from the World Health Organization, the United Nations, consulting company IQVIA, and French database Theriaque, Lichtenberg was able to identify the role that pharmaceutical innovation played in reducing the number of years of life lost due to 66 diseases in 27 countries. (“Years of life lost” is an estimate of the average years a person would have lived if he or she had not died prematurely.)
OK, now a simple economics question: given such numbers, should we be spending more on pharmaceutical drugs, or less? I might add that biomedicine has made some spectacular advances as of late, so the notion that these are average costs, and the marginal cost slants sharply upward, probably is not true.
How many of you got the simple economics question right?
The republic is enjoying a €8bn corporate tax windfall after bumper pandemic-enhanced revenues from tech and pharmaceutical companies. The tax take from companies attracted by Ireland’s 12.5 per cent corporate rate has soared since 2015 and leapt a further 30 per cent last year compared with 2020.
Ireland’s economy expanded by 6.3 per cent over the second quarter, against an EU average of just 0.6 per cent. So great was the impact from multinationals that Ireland’s numbers distorted EU figures, despite the nation of 5.1mn making up less than 3 per cent of the region’s economy.
Here is more from the FT.
Jon Clifton, the head of Gallup, which has been tracking wellbeing around the world for many years, notes a polarisation in people’s life-evaluations. Compared with 15 years ago (before the financial crisis, smartphones and Covid-19) twice as many people now say they have the best possible life they could imagine (10 out of 10); however, four times as many people now say they are living the worst life they can conceive (0 out of 10). About 7.5 per cent of people are now in psychological heaven, and about the same proportion are in psychological hell.