Becker on the FDA

by  Alex Tabarrok in

In the latest Milken Institute Review, Nobel laureaute Gary Becker argues (sign up required) that the FDA should permit drugs to be sold once they have passed a safety standard, i.e. a return to the pre-1962 system. He writes:

…a return to a safety standard alone would lower costs and raise the number of therapeutic compounds available. In particular, this would include more drugs from small biotech firms that do not have the deep pockets to invest in extended efficacy trials. And the resulting increase in competition would mean lower prices – without the bureaucratic burden of price controls…

Elimination of the efficacy requirement would give patients, rather than the FDA, the ultimate responsibility of deciding which drugs to try…To be sure, some sick individuals would try ineffective treatments that would otherwise have been prevented from reaching market under present FDA regulations. But the quantity of reliable health information now available with only a little initiative is many times greater than when the efficacy standard was introduced four decades ago.

Dan Klein and I have written extensively on this issue at our web site, FDAReview.org, and in our latest paper Do Off Label Drug Practices Argue Against FDA Efficacy Requirements?

Secession

by  Alex Tabarrok in

Recently Killington voted to secede from Vermont and join New Hampshire. Some people find this desire quixotic since Killington is smack dab in the middle of Vermont. The classic Tiebout argument says that voting with one’s feet helps to discipline government and provide a better match between government and citizen preferences. But why should the dissidents have to pack their bags? It’s the Vermont taxes that the residents of Killington want to escape not the skiing. Wouldn’t it be less costly to switch governance rather than citizens?

Does such a system sound crazy? Perhaps, but it is essentially the same supra-competitive federalism that has worked well for corporate law, so maybe we ought to give it a try.

And remember, if at first you don’t secede, try, try again.

Will Google be overpriced?

by  Tyler Cowen in

Read Brad DeLong, who says yes. I agree, while admitting upfront I won’t have the guts to sell short. Here is an earlier MR post on why Google is so vulnerable in its key markets. Here is an earlier MR post on adverse selection and Google’s IPO.

Addendum: “Of the 10 IPOs with the biggest first-day pops since 1975, not one ever returned to the price it reached its first day, according to an analysis of data from Jay Ritter, professor of finance at the University of Florida.”

Your imaginary girlfriend, or markets in everything

by  Tyler Cowen in

I thought long and hard before choosing the “economics” category heading for this post. So what is an imaginary girlfriend?

This is a service provided by a real life girl where she will pretend to be your long distance girlfriend by sending you personalized love letters, emails, pictures, leave phone messages (if you want), and provide other girlfriend-like services. This relationship appears real to others that may see these things, but it is not. There will be no actual real life meetings or relationship between you and your Imaginary Girlfriend other than that specified in your order.

There is more:

What happens when the time is completed?

When the stated time period is over, you can break up with your Imaginary Girlfriend for any reason you wish. She will write you a final letter begging you to take her back. Of course you can continue your “relationship” by renewing, or start over and find a new Imaginary Girlfriend of your choice!

The suppliers note: “Anyone who has difficulty distinguishing reality from fantasy should NOT use this service.” At the same time, they write: “Perhaps you are wondering what it’s like to have a long distance girlfriend?”

Here are some of the available (imaginary) girlfriends.

Thanks to Rich for the pointer. Maybe some people do this for fun, but I suspect this is one of the more brutal installments of “Markets in Everything.”

Addendum: Let’s outsource this to India!

Second addendum: Rich has an excellent home page.

Is the shopping mall dead?

by  Tyler Cowen in

More and more large department stores are moving out of centralized shopping malls. Consumers prefer big stand-alone boxes.

Why might this be? Consider a few reasons:

1. A stand-alone store has better retail focus. It can target its marketing, direct mail, and advertising more effectively.

2. People like to park right in front of their destination.

3. You go to malls to browse and shop; you go to off-mall stores to actually buy things. Competing entertainment sources have lowered the importance of shopping as a leisure activity.

It is less clear whether a shopping mall is likely further from where you live. On one hand, a mall is probably centrally located. On the other hand, a mall is harder to place because of its size. You can splatter a bunch of Best Buy stores around a suburban area, but you could not do the same for the Mall of America in Minneapolis.

What about good ol’ introspection?: I prefer the big boxes. My reasons are simple. I am a man and I prefer buying to shopping. And I hate parking garages, which are common in malls. I am also willing to let these foibles determine where I shop. By the way, here is a previous MR post on the socialist origins of the shopping mall concept.

Why isn’t Brazil a first-world country?

by  Tyler Cowen in

I love Brazil, and there are few places where I feel more at home. That being said, the place can be a mess. Here is one reason why:

Unlike the United States, Brazil has chosen to collect most of its taxes through corporations. Thus today, taxes paid by corporations in Brazil are almost twice as high as in the United States. However, that’s not the right comparison. We should be making a comparison with the United States in 1913. That’s when the United States had the same GDP per capita as Brazil today. In 1913 the U.S. government spent only 8 percent of GDP. Thus, as a percentage of GDP, the corporate tax burden in Brazil today is seven times that of U.S. Corporations when the United States was at Brazil’s current GDP per capita.

Here are formal details on Brazilian corporate taxation. But the document does not stress the reality that half the firms shirk their burden and the more efficient firms must pay far more than they ought to.

It gets worse:

Brazil’s government spends about 11 percent of GDP on the government-run pension system compared with 5 percent in the United States today and close to zero in 1913. The government contribution to the pensions of Brazil’s government employees is 4.7 percent of GDP compared with 1.8 in the United States today….Brazil clearly has government employment it can’t afford.

Here is an article on Lula’s partial success in reforming Brazilian pensions, here is more detail.

The quotations are taken from William Lewis’s interesting The Power of Productivity.

To be continued…

What makes for media bias?

by  Tyler Cowen in

Economists are taking a greater interest in the media. Here is an interesting new paper by Andrei Shleifer and Sendhil Mullainathan, The Market for News .

Abstract: We investigate the market for news under two assumptions: that readers hold beliefs that they like to see confirmed, and that newspapers can slant stories toward these beliefs. We show that, on the topics where readers share common beliefs, one should not expect accuracy even from competitive media: competition results in lower prices, but common slanting toward reader biases. However, on topics where reader beliefs diverge (such as politically divisive issues), newspapers segment the market and slant toward the biases of their own audiences, yet in the aggregate a conscientious reader could get an unbiased perspective. Generally speaking, reader heterogeneity is more important for accuracy in media than competition per se.

Also read Alex’s earlier post, Surprise! Fox News is Fair and Balanced!.

Your new $50 bill

by  Tyler Cowen in

Check out the new colors. The redesign, of course, is designed to stymie counterfeiters. Counterfeit money was a huge problem in the eighteenth and nineteenth centuries:

The London Gazette of 1848 gives some idea of the impact of forgery on daily business. Nothing could be purchased without a dispute. Over every counter there was a wrangling from morning till night. The workman and his employer had a quarrel as regularly as the Saturday came round. No merchant could contract to deliver goods without making some stipulation about the quality of the coin in which he was to be paid. The simple and careless were pillaged without mercy by extortioners whose demands grew even more rapidly than the money shrank. The cost of necessities of life rose fast…the labourer found that the bit of metal, which when he received it, was called a shilling would hardly, when he wanted to purchase a pot of beer or loaf of bread, go as far as sixpence.

Here is a brief history of banknote security features. I’ve read estimates of one third to one half of American and British money supplies being counterfeit rather than real during this era.

What if modern technology made counterfeiting unstoppable? I can think of a few outcomes:

1. The value of money would fall to its marginal cost of production. This would likely be very low.

2. People would stop accepting cash.

3. Penalties for counterfeiters would increase dramatically.

That being said, it is hard to do away with cash altogether. And serious counterfeiters might reside abroad in rogue states. So we are left with #1. The net result would be a huge tax on the underground economy and on dollar economies abroad.

The new music gatekeepers, namely you

by  Tyler Cowen in

Do you want to know what other people are listening to? Go to Webjay.org, where you can find large numbers of playlists. The old Napster used to offer user song directories, but of course the new file-sharing companies have to plead ignorance of what their downloaders are doing. So it is only natural that such a “recommendations” service should migrate elsewhere.

WebJay is designed for music that is freely available on the web, though it is not restricted to such music.

Clay Shirky writes:

…you get three filters in one – someone else has vetted the music for quality, the music is rolled up in thematic playlists, further raising the “If you like X, you might also like Y” quotient, and everything you hear is (at least putatively) music libre.

This is just a start but the idea has enormous potential. Where else can you follow “Brazilian techno pop rock experimental and (why not?) samba”?

Is the welfare state good for growth?

by  Tyler Cowen in

It’s not as simple as you might think. First, let us start with the bad news:

Whatever one might have thought, the smaller-government countries such as Japan, the United States, Switzerland, Canada, and Australia tax capital and private property at least as heavily as the welfare states of Scandinavia, Germany or the Netherlands.

That’s Peter Lindert, writing in a recent research paper. Now the plot thickens. It turns out that welfare state spending does not diminish economic growth, drawing from a sample of OECD countries. This result, however, requires qualification. If you spend more on welfare, your other policies are more favorable for growth:

…the welfare state choice of a large overall tax burden to support transfers is usually accompanied by the political choice of taxes that promote growth and environmental quality…This is not just a temporary condition captured by our 1995 snapshots. It has been the case over the last third of the twentieth century…

Lindert suggests the following principle: “The higher the social budget as a share of GDP, the higher and more visible is the cost of a bad choice.“

So when it comes to growth-damaging policies, governments can only get away with so much. Many interventions will appear in the data to be growth-neutral. Yes you do something bad, but the system reacts by kicking something good back to you. Or vice versa. In a true ceteris paribus thought experiment, however, more social spending still damages growth.

If you are a policy advisor, what is the correct perspective? Say John Kerry calls you up and asks you about social spending. Should you answer the ceteris paribus question, and look at the increase in welfare spending alone? Or should you answer the general equilibrium remixing question, and consider what other good policies will come bundled with some more welfare spending? If you opt for the latter, does it mean you should be indifferent toward inefficient policies? After all, you will find a way to make up for the loss (a bit like being a writer and having part of your day’s work crash; your second draft is usually better). Do you still get the favorable general equilibrium remixing if everyone advises that anti-growth policies do not matter at the margin? Does this mean that we should complain less about Bush’s fiscal irresponsibility?

Read the Lindert paper, it is sure to provoke your thinking. I just ordered his new book on the same topic.

The bottom line: These questions should make everyone uncomfortable. Let’s say you favor free markets. Perhaps you only get some of the goodies you want (i.e., trade) because the government is allowed to spend the resulting surplus in ways that it wants (i.e., welfare). You can’t always simply pick and choose policies a’ la carte. By the way, is it an accident that Bush boosted social spending but also cut taxation on capital?

Random Numbers

by  Alex Tabarrok in

Here are some random numbers between 0 and 100:

69 64 12 6 73 42 43 65 61 16 77 87 86 65 42 35 100 76 65 47 67 45 3 93 38

I’m not sure what to do with them either but they were generated by a quantum process and hence are truly random. Most “random numbers” are generated by a computer and hence are only pseudo-random. Although this sounds like a frivolous distinction, generating true random numbers is actually quite difficult and getting them right can be important for testing all kinds of scientific theories as well as for doing simulations and numerical integration via Monte Carlo methods.

You can get your own quantum generated random numbers here.

Hat tip to Michael Statsny and his excellent blog Mahalanobis.

Addendum: Patrick Livingood points me here where you can get “4.8 billion random bits, in sixty 10-megabyte files. They were produced by a combination of several of the best deterministic random number generators (RNG’s), together with three sources of white noise, as well as black noise (from a rap music digital recording). My intent is to provide an unassailable source for those who absolutely positively have to have a large, reliable set of random numbers for serious simulation (Monte Carlo) studies.”

Empathy update

by  Tyler Cowen in

There may be less to empathy than meets the eye:

The ability to empathise is often considered uniquely human, the result of complex reasoning and abstract thought. But it might in fact be an incredibly simple brain process ­ meaning that there is no reason why monkeys and other animals cannot empathise too.

That is the conclusion of Christian Keysers of the University of Groningen in the Netherlands and his colleagues. The team used a functional MRI scanner to monitor volunteers while their legs were touched and while they watched videos of other people being touched and of objects colliding.

To the team’s surprise, a sensory area of the brain called the secondary somatosensory cortex, thought only to respond to physical touch, was strongly activated by the sight of others being touched.

This suggests that empathy requires no specialised brain area. The brain simply transforms what we see into what we would have felt in the same situation. “Empathy is not an abstract capacity,” Keysers concludes. “It’s like you slip into another person’s shoes to share the experience in a very pragmatic way.”

Even more surprisingly, seeing objects collide generated the same activity. “We expected a big difference,” Keysers says, “but the results are not restricted to the social world. In a certain way we share experiences with objects.”

Other studies have produced comparable results: emotional faces activate emotional areas, for instance. It seems that the brain not only generates a visual sense of what we see, but also activates other sensory components to give us a complete “sense” or feeling for what we are observing.

This means we can feel empathy without building up complex theories about what others feel, Keysers says. Instead, after we have learned what feeling goes with being touched ourselves, our brains become conditioned to trigger the same feeling when we see others being touched.

“We do not need to assume a separate mechanism to understand the social world,” he says.

Here is the full story. Here is an earlier MR post on sympathy, here is another. Here is the home page of the researcher.