Category: Economics
Off Label Prescribing as Good as On Label
Once a drug has been approved for some use it may be legally prescribed for any use. New uses for old drugs are discovered quite often so off-label uses can be very different from FDA approved uses. Mitomycin, for example, was approved to treat stomach and pancreatic cancer but is used off-label in laser-eye surgery. Drugs prescribed off-label have not been through FDA-approved efficacy trials for the off-label use. In Assessing the FDA via the Anomaly of Off-Label Drug Prescribing I pointed out that off-label prescribing, therefore, gives us a window onto a world with much less FDA regulation.
Since off-label prescribing is common and in rapidly progressing areas of medicine often the gold-standard, I argued that the behavior of physicians validated off-label prescribing and demonstrated that physicians were willing and able to draw upon non-FDA sources of information to make rational prescribing decisions. Dan Klein and I also showed that physicians are supportive of off-label prescribing saying, for example, that it would be “crazy” to require FDA approval for off-label uses.
The support of physicians for off-label prescribing is telling but not dispositive. Perhaps physicians make hubristic mistakes in prescribing off-label. A new paper by Ladanie et al. (including John Ioannidis) provides important information. The authors search the literature for all the RCTs when an off-label drug was pitted against an on-label drug. They conclude:
Our meta-epidemiological analysis of 25 different treatment indications for off-label drug use provides no empirical evidence supporting any assumption of generally inferior treatment
effects associated with off-label use. On the contrary, the summary effect estimates across all indications would even be compatible with more favorable effects, on average, of the off-label
treatment. However, the heterogeneity is substantial and the on-label comparators are not necessarily the best approved treatment option in all 25 topics. While some off-label
treatments are clearly better, others are clearly not.
The finding is especially impressive because although off-label treatments are sometimes the gold standard they are also often used when standard treatments have failed. Thus, in an RCT, off-label treatments could be worse on average and yet still provide a very useful weapon in the medical armory.
One might argue that if off-label treatments are as good as FDA-approved treatments then the FDA should have higher standards. FDA required clinical trials, however, already cost hundreds of millions of dollars and years of effort, creating drug lag and drug loss. Rather than condemning the FDA, what these results indicate is that the medical system–physicians, hospitals, insurers, scientists–does a good job at evaluating new uses for old drugs. As Dan Klein and I noted in our precis on off-label prescribing:
The off-label experience testifies to the fact that much knowledge about efficacy and safety is produced outside the FDA regulatory apparatus. The Pharmacopoeia’s recognition of off-label
indications years ahead of the FDA demonstrates that physicians and scientists have certified thousands of drug indications quite independently of the FDA, even when those indications are not
very closely related to the original indications. In addition to the Pharmacopoeia, there are several other forms of professional certification, including the American Hospital Formulary Service Drug Information, HMO formularies, and a wide array of specialist professional periodicals and information services. NIH studies, clinical results and determinations from other countries, and other professional, science-based judgments are examples of nongovernmental, non-mandatory certification.
Hat tip: Michelle Dawson.
The show so far, a continuing series
1. The situation with North Korea has moved to one of open confrontation. That said, there are stronger commercial sanctions on North Korea than before, and the attitude of the Chinese does seem to have shifted toward recognizing North Korea as a problem needing to be solved. For the time being, both the missile tests and the jawboning have stopped, for unknown reasons. Note that the South Korean and Japanese markets remain high, of course the U.S. market is strong too.
2. Trump has spent a great deal of time with Prime Minister Abe, the real “pivot toward Asia.” Abe is being treated like the most important leader of the free world — is that crazy? Merkel is now teetering.
3. The Trump administration has recognized and encouraged a much more explicit semi-military alliance between America and India, also part of the pivot. China-India relations could be the world’s number one issue moving forward.
4. The apparent “green light” from the Trump administration probably raised the likelihood and extremity of the Saudi purge/coup. I give this a 20% chance of working out well, though with a big upside if it does. Whether you like it or not, so far it appears to me this is Trump’s most important initiative.
Just to interject, much of your assessment of the Trump administration should depend on #1-4, and I am worried that is hardly ever the case for those I see around me. While I do not view the current administration as “good executors” on foreign policy, the remaining variance on #1-4 is still very high and it is not all on the down side.
5. The Trump administration seems to think that keeping production clusters within this nation’s borders is of higher value than shaping the next generation of the world’s trade architecture. I don’t think they will get much in return for this supposed trade-off, but there you go.
6. I am seeing deeply biased assessments of tax reform, from both sides. I don’t favor raising the deficit by $1.5 trillion (or possibly more), I do favor cutting corporate rates and targeting some of the most egregious deductions. I am disappointed that there is not more celebration of the very good features of the plan on the table, that said big changes in the proposed legislation still are needed.
7. In terms of regulatory reform (WSJ), the administration has done better than my most optimistic scenario. In their worst area, carbon, progress on solar and electric cars is bigger good news than the bad policy news. And for all practical purposes, the carbon policy of Trump is not much different from that of say Angela Merkel.
8. The suburbs are rebelling against the Republican Party. There is a decent chance the Republicans will lose the House in 2018, as well as numerous governorships. Soon we may get a window of a very different Trump, plus more investigations.
9. Various people connected to Trump will be nabbed for crimes and perjuries.
10. Trump has personally “gone after” many political and social norms, but it is not yet clear if they will end up weaker or stronger as a result. His “grab them…” tape for instance seems, in the final analysis, to have empowered a major rebellion in the opposite direction. #10 is a major reason why many commentators hate Trump as a person and president, and I can understand that response, but I am myself more focused on what the final outcomes will be and there we do not know.
11. The cultural and intellectual force of liberalism — broadly defined — has been greatly weakened by a mix of Trump and Trump-related forces. I find this tragic and a major source of despair.
12. I do not favor “a decline in the dignity of the presidency” in the manner we are seeing, but I find many of these criticisms are stand-ins for not liking the substance of what is happening. I don’t think we know what are the costs (or benefits) are from this transformation of the presidential image. I could readily imagine those costs are high, but as a sociological matter I am seeing “the dignity of the office of the president has been insulted” as a stand-in for “my dignity has been insulted.”
13. The quality of discourse continues to decline.
Thrasher and Gaus on the Calculus of Consent
Writing for the The Oxford Handbook of Classics in Contemporary Political Theory, political philosophers John Thrasher and Gerald Gaus review Buchanan and Tullock’s The Calculus of Consent:
Calculus advances new methods in an attempt to solve an old problem: the problem of
democratic justification. While democracy claims to be the “rule of the people” in any
actual democratic system we actually find the rule of some people over others. More
formally, the winning coalition in any election is able to impose its authority on the losers.
This is true however large the majority happens to be, and however small the minority is,
unless the vote is unanimous; and even then, there may be an excluded minority of those
who did not or could not vote. Yet at the heart of the democratic ideal is the principle that
all are inherently free and equal, with no natural authority to rule over one another. How
odd then to start from freedom and equality and end with majority coalitions imposing
their policies on minorities merely because they have the numbers to do so. Once we see
this oddity we are confronted with the question: how could the authority of democratic
assemblies over free and equal persons be justified? This is the problem of democratic
justification, a problem that animates Calculus.…A feature of Calculus typically missed is its optimism. Public choice theory is commonly
characterized as anti-democratic, or as undermining faith in the democratic process
(Barry 1989; Christiano 1996, 2004). Rightly understood though, Calculus is an almost
giddy endorsement of democracy (of a specific form) in the face of what looked like dire
prospects for democratic theory.
This seems whacky, yet I cannot refute it (from the comments), tax incidence department
Here is an unrelated topic, but part of the general topic of tax incidence. Do federal employees pay income tax on their wages? I know they do nominally, but that tax goes back to their employer, the federal government. So, doesn’t that mean that, while their actual salary may be lower than their official nominal salary, they actually don’t pay any tax? (NB: this is quite different from a private sector employee whose after-tax salary is less than the pre-tax salary. In that case, the difference between the two does *not* go to the employer, creating a gap between what the employer pays and what the employee receives.)
For example, suppose a private firm and the federal government both value a worker’s output at $100k/yr and the tax rate is 20%. The private firm offers the worker $100k and the worker receives $80k after paying taxes. The federal government, however, can offer the worker $125k in nominal salary, *knowing that it will receive $25k back in income tax*. The net result is that the federal government pays $100k and the worker receives $100k after taxes, i.e., the worker earns $100k tax free, $20k more than he or she would earn at the private firm. Another way of seeing this is to note that taxes paid by employees are economically equivalent to taxes paid by employers. So, if employers received rebates for income taxes paid by employees, then the net income tax would be zero. Well, the federal government *does* receive a rebate for all income taxes paid by employees!
Doesn’t this mean that taxes are doubly distortive? Not only do they discourage employment by creating a gap between what (private) employers pay and what workers receive — the usual cited distortion — they also distort the *composition* of the workforce by allowing the federal government to crowd out other employers.
That is from BC.
When does caste integration bring greater understanding?
It should be collaborative rather than adversarial:
Integration is a common policy used to reduce discrimination, but different types of integration may have different effects. This paper estimates the effects of two types of integration: collaborative and adversarial. I recruited 1,261 young Indian men from different castes and randomly assigned them either to participate in month-long cricket leagues or to serve as a control group. Players faced variation in collaborative contact, through random assignment to homogeneous-caste or mixed-caste teams, and adversarial contact, through random assignment of opponents. Collaborative contact reduces discrimination, leading to more cross-caste friendships and 33% less own-caste favoritism when voting to allocate cricket rewards. These effects have efficiency consequences, increasing both the quality of teammates chosen for a future match, and cross-caste trade and payouts in a real-stakes trading exercise. In contrast, adversarial contact generally has no, or even harmful, effects. Together these findings show that the economic effects of integration depend on the type of contact.
That is from a new paper by Matt Lowe, and Matt is a job market candidate coming out of MIT.
And here is a recent paper by Devesh Kapur, Chandra Bhan Prasad, Lant Pritchett and D. Shyam Babu, on the benefits of modernity for Dalits, here is one short bit of the abstract:
The survey results show substantial changes in a wide variety of social practices affecting Dalit well-being—increased personal consumption patterns of status goods (e.g. grooming, eating), widespread adoption of ―elite‖ practices around social events (e.g. weddings, births), less stigmatising personal relations of individuals across castes (e.g. economic and social interactions), and more expansion into nontraditional economic activities and occupations.
That said, please do not confuse “big improvements” with “no serious problem.”
The gains from cutting corporate tax rates
Here is a recent paper by Stephen Bond and Jing Xing:
We present new empirical evidence that sector-level capital–output ratios are strongly influenced by corporate tax incentives, as summarised by the tax component of a standard user cost of capital measure. We use sectoral panel data for the USA, Japan, Australia and eleven EU countries over the period 1982–2007. Our panel combines internationally consistent data on capital stocks, value-added and relative prices from the EU KLEMS database with corporate tax measures from the Oxford University Centre for Business Taxation. Our results for equipment investment are particularly robust, and strikingly consistent with the basic economic theory of corporate investment.
Via Henry Curr. Here is a piece by Fuest, Piechl, and Siegloch, forthcoming in the American Economic Review:
This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities. Administrative linked employer-employee data allows estimating heterogeneous worker and firrm effects. We set up a general theoretical framework showing that corporate taxes can have a negative effect on wages in various labor market models. Using an event study design, we test the predictions of the theory. Our results indicate that workers bear about 40% of the total tax burden. Empirically, we confirm the importance of both labor market institutions and profit shifting possibilities for the incidence of corporate taxes on wages.
Via Dina D. Pomeranz. I’ve been reading in this area on and off since the 1980s, and I really don’t think these are phony results.
The Uber Tipping Equilibrium
What is the effect of tipping on the take-home pay of Uber drivers? Economic theory offers a clear answer. Tipping has no effect on take home pay. The supply of Uber driver-hours is very elastic. Drivers can easily work more hours when the payment per ride increases and since every person with a decent car is a potential Uber driver it’s also easy for the number of drivers to expand when payments increase. As a good approximation, we can think of the supply of driver-hours as being perfectly elastic at a fixed market wage. What this means is that take home pay must stay constant even when tipping increases.
But how is the equilibrium maintained? One possibility is that as riders tip more, Uber can reduce fares so that the net hourly wage remains constant. Since take home pay doesn’t change we will have just as many drivers as before tipping. Under the tipping equilibrium the only change will be that instead of the riders paying Uber and then Uber paying the drivers, the riders will also pay something to the drivers directly and Uber will pay the drivers a little bit less. The drivers end up with the same take home pay.
But suppose that Uber doesn’t want to reduce fares or is somehow constrained from doing so. Does the model break down? Sorry, but the laws and supply and demand cannot be so easily ignored. If Uber holds fares constant, the higher net wage (tips plus fares) will attract more drivers but as the number of drivers increases their probability of finding a rider will fall. The drivers will earn more when driving but spend less time driving and more time idling. In other words, tipping will increase the “driving wage,” but reduce paid driving-time until the net hourly wage is pushed back down to the market wage.
At this point many readers will object that I am a horrible person and this is all theory using unrealistic “Econ 101” assumptions of perfectly competitive markets, rationality, full information etc etc. To which my response is that the first claim is plausible but irrelevant while the second is false. A new paper, Labor Market Equilibration: Evidence from Uber, from John Horton at NYU-Stern and Jonathan Hall and Daniel Knoepfle, two economists at Uber, looks at what happens when Uber increases base fares:
We find that when Uber raises the base fare
in a city, the driver hourly earnings rate rises immediately, but then begins
to decline shortly thereafter. After about 8 weeks, there is no detectable
difference in the average hourly earnings rate compared to before the fare
increase. With a higher fare, drivers earn more when driving passengers, and
so how do drivers make the same amount per hour? The main reason is that
driver utilization falls; drivers spend a smaller fraction of their working hours
on trips with paying passengers when fares are higher.
My conclusion is that increases in Uber fares are a very bad idea. Why? Increases in Uber fares–i.e. increases beyond those required to have enough drivers so that pick-up times are reasonably short–have two negative effects. First, and most obviously, higher fares increase the price to riders. Second, higher fares don’t result in higher driver earnings but do result in drivers wasting time.
The situation is very similar to the inefficient market for realtors. When realtors earn a fixed percentage of a home’s sales price, higher home prices encourage more entry into the realtor market. But we don’t need more realtors just because home prices have increased! When home prices are high, a realtor can earn enough selling a handful of homes a year to make it worthwhile to stay in the industry even though most of the realtor’s time is spent unproductively finding customers rather than actually helping customers to buy and sell homes. It would be better if commission rates fell when home prices rose but even after many years of online entry that typically doesn’t happen which is the mystery of realtor rent-seeking.
Uber is a great service for riders and it’s also great for people who need a source of flexible earnings. The fact that Uber drivers earn less than some people think is appropriate is a function of the wider job market and not of Uber policy. Indeed, Uber can’t increase take-home pay by raising fares and if we require them to do so we will simply hurt consumers and waste resources without improving the welfare of drivers.
Let them sell the Norman Rockwells
The Berkshire Museum, yes. They were going to sell 40 paintings at Sotheby’s, including two very special Norman Rockwells, but at the last minute a court decision halted the sale, claiming (with only thin justification) that the sale would violate the museum’s trusts. That is the setting of my latest Bloomberg column, here is one bit:
The sad truth is that the people running the Berkshire Museum just don’t care that much about American art any more, at least not from an institutional point of view. Given that reality, it’s actually better if they are not entrusted with important artworks.
The court’s decision now means it will be hard to pull off the sale with fully clear rights to the titles, although the court’s judgment will be re-examined in December. Both the uncertainty and the surrounding negative publicity will scare off buyers and may spoil the market for a long time to come.
There is much more at the link. The argument against selling, of course, is that in a world of frequent sales all museums will find it hard to make credibly binding commitments to their donors, who often do not want their donated works recycled in the marketplace. But the equilibrium of zero selling is one that will destroy a great deal of value in the art world. Note that this problem will become increasingly relevant as the clock ticks and the number and inappropriateness of past museum commitments piles up. If nothing else, sooner or later insolvency sets in. Rust never sleeps. And so on.
Should churches really own all that land in the downturns of major American cities?
My review of Edward Balleisen’s book *Fraud*
It is in the new issue of the Times Literary Supplement (a wonderful periodical of course), right now this link is ungated, for how long I do not know. I thought the book was very well-written and especially impressively researched. But on the side of economics and conceptual framework, I found it too biased. Here is one excerpt from my review:
In a book with almost 400 pages of text, it is striking that government fraud is not seriously discussed, with the exception of the critical take on the Comstock movement, under which the Post Office took up a moral crusade against mail fraud, directed by the evangelical Anthony Comstock. Yet if consumers are so impetuous and ill-informed as to be frequent victims of business fraud, might not voters and even activist citizens be prone to similar manipulations? Balleisen mentions that such a view was held by the nineteenth-century Spencerian Edward Youmans, but he doesn’t do much more than mock it and then move on. Yet arguably the biggest fraud of the early part of the twentieth century was the selling of the First World War to the American public on mostly false pretences. Progressives led this sales pitch, through spokesmen such as Herbert Croly, and of course the President Woodrow Wilson, telling the American people that war was a noble cause that would revitalize the nation and save the world.
In Balleisen’s narrative, however, the Progressives show up only as critics of fraud.
And is corporate fraud really going up these days?:
Take lives lost in the workplace. An employer more or less promises that a job is relatively safe, and if it turns out to be dangerous that may reflect a kind of fraud or at the very least a major disappointment. Yet jobs in America have never been as safe as today, and furthermore the rate at which job safety increases does not seem to have been affected by the creation of the Occupational Safety and Hazard Administration (OSHA). Or what about food poisoning, which you also might take as a sign of a fraudulent transaction? Again, overall, the opportunity to buy truly transparently safe food supplies seems greater than ever before, notwithstanding the fact that more consumers are voluntarily taking chances with sushi, non-pasteurized cheeses and home-made raw milk. The nice thing about mortality statistics is that a death pretty much always reflects a disappointment with the transaction, but for most metrics (opioid markets being one significant exception) mortality is down over the past few decades.
Do read the whole thing.
My Conversation with Sujatha Gidla
Here is the transcript and podcast, I enjoyed this chat very much. Here is part of the opening summary:
Sujatha Gidla was an untouchable in India, but moved to the United States at the age of 26 and is now the first Indian woman to be employed as a conductor on the New York City Subway. In her memoir Ants Among Elephants, she explores the antiquities of her mother, her uncles, and other members of her family against modern India’s landscape.
Our conversation considered the nature and persistence of caste, gender issues in India, her time as a revolutionary, New York City lifestyle and neighborhoods and dining, religion, living in America versus living in India, Bob Dylan and Dalit music, American identity politics, the nature of Marxism, Halldor Laxness, and why she left her job at the Bank of New York to become a New York City subway conductor, among other topics.
Here is one sequence:
GIDLA: Actually, the only relation I have with my family members is political views.
[laughter]
GIDLA: If we have to connect on familial links, we will always be fighting and killing each other. All that we talk about with my mother is politics and untouchability and caste and Modi and things like that.
It’s the same thing with my sister also. This is where we connect. Otherwise, we are like enemies. My brother, we’re completely alienated from each other, firstly because he goes to church now. We never used to go to church before. He’s into this Iacocca. Is there a name . . . ?
COWEN: Iacocca?
GIDLA: Yeah.
COWEN: Lee Iacocca?
GIDLA: Yeah.
COWEN: The former Chrysler chairman?
GIDLA: Yeah. He reads that kind of books.
COWEN: Management books.
GIDLA: He’s into that kind of stuff.
COWEN: You don’t?
GIDLA: No.
GIDLA: He read Freakonomics and he liked it. I don’t relate to that stuff.
And this toward the end:
COWEN: Your most touching memory of your mother?
GIDLA: I don’t know. When I was arrested, she was very worried. She said, “I wish I could take you back into my womb.”
Strongly recommended. I was pleased to see that Publisher’s Weekly named Sujatha Gidla’s book as one of the ten best of 2017, you can order it here.
The earlier age of mass migration to America also brought political backlash
Gifts of the Immigrants, Woes of the Natives: Lessons from the Age of Mass Migration (2017). JOB MARKET PAPER
Abstract: In this paper, I show that political opposition to immigration can arise even when immigrants bring significant economic prosperity to receiving areas. I exploit exogenous variation in European immigration to US cities between 1910 and 1930 induced by World War I and the Immigration Acts of the 1920s, and instrument immigrants’ location decision relying on pre-existing settlement patterns. Immigration increased natives’ employment and occupational standing, and fostered industrial production and capital utilization. However, it lowered tax rates, public spending, and the pro-immigration party’s (i.e., Democrats) vote share. The inflow of immigrants was also associated with the election of more conservative representatives, and with rising support for anti-immigration legislation. I provide evidence that political backlash was increasing in the cultural distance between immigrants and natives, suggesting that diversity might be economically beneficial but politically hard to manage.
That is from Marco Tabellini, job market candidate at MIT.
Investment in sons crowds out investment in daughters
…sons crowd out human capital acquisition by daughters. If all daughters of self-employed men experienced the “sisters-only” level of transmission, the overall gender gap in self-employment would be reduced by nearly 20 percent.
That is from Elizabeth Mishkin, on the job market from Harvard.
While we are on related topics:
I establish that women in U.S. counties with heavier casualties were more active in starting new businesses after the war [WWII] ended and this difference persists to this day. I also find that single women were more likely to start new businesses than war widows. Evidence in favor of the marriage market channel suggests that reducing opportunity cost is more effective in encouraging women to start new businesses than merely providing financial subsidies.
That is from Patrick Luo, also on the job market from Harvard.
Seasteading is Making Progress
Seasteading, the once quixotic idea of Patri Friedman and early funder Peter Thiel, is now taking shape in French Polynesia writes David Gelles in the New York Times:
Long the stuff of science fiction, so-called “seasteading” has in recent years matured from pure fantasy into something approaching reality, and there are now companies, academics, architects and even a government working together on a prototype by 2020.
…Earlier this year, the government of French Polynesia agreed to let the Seasteading Institute begin testing in its waters. Construction could begin soon, and the first floating buildings — the nucleus of a city — might be inhabitable in just a few years.
“If you could have a floating city, it would essentially be a start-up country,” said Joe Quirk, president of the Seasteading Institute. “We can create a huge diversity of governments for a huge diversity of people.”
The future is hard to predict but I am eager to see greater experimentation in city governing rules.
Addendum: I have been a minor adviser.
The dystopia of Malcolm Harris
He is the author of the new and interesting Kids These Days: Human Capital and the Making of Millennials. Most of the book is about millennials as the generation that invests in itself. Towards the end he lays out a somewhat separate discussion of what a future dystopia might look like, I am very briefly summarizing his seven points, noting that some of the headings are my rewordings:
1. The equitization of human capital. This will start out as “win-win” transactions, but eventually will become “subprime human capital.”
2. The professionalization of childhood. Kids will start preparing for fairly specific and very locked-in careers at quite young ages, and find it difficult to deviate later on.
3. “Climate privilege.” The ability to live somewhere insulated from most of the costs of climate change will become a major marker of class and privilege.
4. Discrimination by algorithm.
5. “The Malfunctioning.” “America will need institutions for people who just can’t make it….I don’t think this will be “funemployment” of a guaranteed minimum income. It’s more likely to be an unholy combination of mental asylum and work camp.”
6. Misogynist backlash.
7. Fully tracked. The “data self” will increasingly approach the “real self.”
Worth a ponder.
The working rich are driving income inequality, not the rentiers
Anti-Piketty:
Have passive rentiers replaced the working rich at the top of the U.S. income distribution? Using administrative data linking 10 million firms to their owners, this paper shows that private business owners who actively manage their firms are key for top income inequality. Private business income accounts for most of the rise of top incomes since 2000 and the majority of top earners receive private business income—most of which accrues to active owner-managers of mid-market firms in relatively skill-intensive and unconcentrated industries. Profit falls substantially after premature owner deaths. Top-owned firms are twice as profitable per worker as other firms despite similar risk, and rising profitability without rising scale explains most of their profit growth. Together, these facts indicate that the working rich remain central to rising top incomes in the twenty-first century.
That is from a new paper by Matthew Smith, Danny Yagan, Owen Zidar, and Eric Zwick, via the excellent Kevin Lewis.