Milton Friedman opposes drug reimportation
Read this TCS interview. He also blames the whole mess on the FDA, whose regulations have raised the costs of drug development to about $800 million per drug.
Buddha Brots
I find these Buddha Brots, images based upon the mathematics of Julia sets and reminiscent of an ethereal Buddha, eerily beautiful. Enough perhaps to make one a Platonist. Hat tip to Kottke.
An economist in Baghdad
Chris Foote an economist at the Boston Fed worked in Baghdad last year. His report makes for interesting reading. This was not your usual job for an economist.
Early on, I visit Iraq’s Central Bank, which was also destroyed by looters. Our mission is to check on the Treasure of Nimrud, a collection of ancient Assyrian jewelry that was stored in the bank’s vault for safekeeping in the early 1990s. The bank’s basement was flooded with sewage water during the looting and has only recently been drained. Our group trudges down the unlit, still slimy stairs, careful not to slip. When we reach the bottom, I see that the corner of one of the vault doors has been peeled away, as if by a giant can opener. I am told that during the postwar chaos, someone tried to open this door with a rocket- propelled grenade, incinerating himself in the process. (The lock in the door held.) The deputy head of the Central Bank jiggles a number of keys and opens another door nearby. We are happy to learn that the treasures are intact.
Most of the time, however, he is working 8 am to 11 pm trying to solve economic problems. As economic theory would predict, but many economists would deny, it’s the basic economics that has the most value added.
In many ways, the job is similar to the one I held at the Council of Economic Advisers (CEA) before coming to Iraq. There the economic questions changed from day to day, sometimes from hour to hour. Baghdad is the same. What is the best way to fix Iraq’s currency? How could foreign investment help Iraq? What tariff regime should we recommend? The questions are all over the map, so I draw more from my experience teaching macroeconomics to undergraduates, and less from my own specialized research.
If you could only learn five things…
Yana, who is fourteen, was complaining last night about her math homework, and about calculus in particular. Without much thinking, I responded that if you could only learn five things from schooling, calculus should be one of them. First came an “Ugh.” Then came a question:
“What are the other four?”
Without much thinking, here was my list, in no particular order:
1. Calculus
2. Statistics
3. Programming
4. Shakespeare
5. The Bible
Another Ugh, directed mostly at the first three items. Writing would have been a natural sixth pick, and would not have drawn an ugh either.
Addendum: I’ve already received several emails asking why I chose the Bible rather than microeconomics. I didn’t mean anything sectarian in my choice of the Bible, rather it is a critical foundation of Western civilization and of Western literature. Plato would be next in line. As for microeconomics, knowing it brings huge social benefits but the private benefits are less clear. I love life as an economist, but it is not for everyone.
Protectionism hurts fine dining
My biggest personal complaint with U.S. trade policy concerns non-pasteurized cheese. Read Fred Foldvary:
Few Americans know what really good cheese tastes like, because the U.S. government bans tasty handmade cheese made from untreated milk. The U.S. Food and Drug Administration prohibits the sale of cheese made with raw milk, which has not been aged for 60 days. If the raw-milk cheese is from France, voila, its sale is prohibited in the USA no matter how long it has been aged.
The danger of eating raw-milk cheese is similar to that of eating raw oysters, yet the latter is legal in the US. Those with higher risk of infection, such as pregnant women, should not eat raw-milk cheese, raw oysters and steak, and other foods that can harbor microbes that cause diseases. But Europeans have been eating raw-milk cheeses since ancient times, evidently with little ill effect. European cheese makers are generally careful to keep the milk uncontaminated, which minimizes the risk.
Now I have a new grudge: the ban on Szechuan peppercorns.
Since 1968, the federal government has banned the import of Sichuan peppercorns, which are the dried berries of the prickly ash shrub. The Agriculture Department did not really enforce the ban until two years ago, and its effort is expected to dry up supplies soon. Some chefs and retailers say that they are unable to find the peppercorns, which are often an ingredient of five-spice powder, a common Chinese seasoning. Others say they are selling what was stockpiled before the enforcement effort began.
The details are a bit complicated, but if you can believe the NYT, there is no good reason for the ban other than excessively broad bureaucratic classifications (a related item endangers citrus crops).
You can’t cook Sichuan food without huajiao,” said Wang Dinggeng, the chef at Grand Sichuan International on Second Avenue. “You can’t get that special ma la flavor,” he said of the peppercorns’ numbing (ma) and burning (la) effects.
Tragic, I say, tragic. By the way, if you ever visit my university, make sure you eat at the Szechuan restaurant China Star, in Fairfax, on Rt.236. Get the house specials, before it is too late.
Googling the Great Books
Google is scanning everything pre-1923 in the Stanford Library into its system, read Will Wilkinson. Here’s to hoping that Congress does not extend the term of copyright protection once again.
Are classical recordings disappearing?
Norman Lebrecht recently predicted that the year 2004 would be the last for the classical recording industry. To be sure, the number of new releases is declining and major orchestras are losing their recording contracts, read this New York Times story.
David Hurwitz offers some good points in response. Naxos of course is thriving. Classical music is cheaper than ever before and many of the recordings are excellent. Try my favorite version of the Scriabin piano sonatas, by Bernd Glemser.
Furthermore classical indepedent labels continue to bring innovative new releases to the market:
Over the past decade, and thanks to labels like Naxos, BIS, Hyperion, Ondine, CPO, Harmonia Mundi, Chandos and others, music lovers have learned that the quality of music making today is generally so high that excellence may be found well beyond the cloistered catalogs of the major labels. Their classical divisions are dying because they are no longer necessary: the myth of their uniqueness and monopoly on great performances has been exploded forever. That’s the reality of the classical music recording industry at present. It’s also reason for optimism, not despair, because while the majors may or may not survive depending on their adaptability, excellent music making will continue to thrive and reach the public via the classical recording industry, whatever its actual form.
I’ve found the last year to be wonderful for new releases of Elliott Carter, Helmut Lachenmann, Pierre Boulez, and John Cage. Minority tastes, to be sure, but the slow sellers are usually the first to go if the sector is truly dying.
Here are some off the cuff predictions for the future of the music industry:
1. The lines between classical and other genres, most of all world music, will blur increasingly.
2. The next generation of classical composers will come from Asia, where classical music remains a living art.
3. World music will continue to grow in importance. These artists learned how to live without copyright protection long ago.
4. Given the commercial prominence of the DVD, we can expect soundtrack music to grow in importance and quality.
5. Classical CDs will be custom-made to order, rather than “released,” see the NYT article for more detail.
In sum: The new musical world won’t look much like the old, but I have yet to see convincing reasons for pessimism. I don’t buy so many classical CDs any more, in part because I already have a dozen or more copies of each Beethoven piano sonata, and three copies of Messiaen’s major works for organ. Let’s not confuse “good for the suits” with “good for the consumer.”
More common sense on outsourcing
Computer programmers are a highly paid lot in the United States. Both the U.S. and India would be better off if lower-wage Indians did more of the programming and the U.S. did more innovating. Read here about tech executive Marc Andreesen, who is willing to come out and offer three cheers for outsourcing. Here is my previous post on outsourcing.
Did sexual selection make humans brainy and artistic?
Birds sing to attract mates, so what about humans? Are our jokes, stories, guitar strumming just part of an elaborately programmed mating strategy? We all know how much young girls fall for rock stars. Here are three reviews of Geoffrey Miller’s The Mating Mind. Click here for a good summary and short critique, here for an outright critique, and here for an account of why Miller’s views are not always so popular. Thanks to www.politicaltheory.info for the links.
Red books and blue books
Valdis Krebs uses data from Amazon to draw a network map of books related to current politics. Two books are linked if they were bought together. Like other maps this one shows the red and the blue. Notice how few books link the clusters. Click on the image to expand.
The economics of Netflix
Lately I’ve signed up for Netflix.com. You pay $20 a month and you get mail order DVDs, free shipping, and you can keep them as long as you want. The limit is three to a customer. Once you return what you have, you can order some more. This is a big business and Wal-Mart is entering the market.
I am finding that Netflix changes what I watch. Service is prompt but there is a lag between ordering and viewing. The only late fee is the rather abstract opportunity cost of not being able to order more films. So I can order a DVD and not watch it for a week or even a month. I can engage in a kind of artistic deficit spending. I find myself ordering more movies that I feel I “ought to watch,” but won’t necessarily enjoy. After all, the consequences of my decision lie further in the future. I find myself especially altruistic toward my wife, and what she wants to watch. I am more willing to order long movies. I could never bring myself to rent The Shawshank Redemption, which is compelling yet sappy and well over two hours long, but now I have seen it.
Netflix reminds me just the tiniest bit of democratic voting. I order films to feel good now about my ordering, and not necessarily to watch them. Overall Netflix has improved my movie viewing and induced me to experiment more. Fortunately it is a supplement to other ways of choosing movies. When it comes to what I really want to see, nothing beats getting in the car and driving there, pushing through the yellow light to make sure I don’t miss the previews.
Does free trade lead to insufficient diversification?
The theory of comparative advantage, and the theory of increasing returns, both predict that free trade brings specialization. Michigan and Tennessee produce automobiles, but Delaware does not. I have heard free trade critics suggest that regions end up especially vulnerable and overspecialized.
Yes in economics virtually everything is possible, once you recognize that Giffen goods and upward-sloping demand curves cannot be ruled out. But I am not so worried about free trade leading to excess specialization.
First, individuals can buy equities from multiple regions or countries. There does appear to be an inefficient “home bias” when it comes to investing, but surely free trade is not at fault here. If anything, free trade should encourage investors to think more globally and to diversify more.
Second, individuals specialize, in response to trade, because specializing brings higher returns. When investors expand a firm or line of business they internalize risk-return trade-offs.
Third, we must consider global risk. Let us say that protectionism helps a country avoid a declining industry. The world as a whole does not gain. Those economic problems are simply shouldered by another country, and in a less efficient way, relative to free trade.
Fourth, risk is borne by individuals, not by countries per se. Having many different industries in a country does not by itself create safety for individual investors or workers. Who cares if France has its own movie industry, if you are losing your job in computer software? Contrary to what Dana Rodrik suggests, it is not necessarily economically safer to live in a large country.
I can see a potential political version of the argument. Free trade, by inducing specialization, might make tax revenue more volatile in a country. Still, tax revenue should be higher in absolute terms. And if revenue volatility is a problem, I would prefer fiscal responsibility over protectionism as the proper medicine.
I am indebted to Randall Parker and Arnold Kling for sharing some of their email correspondence on this topic with me.
The culture that is French
Concern over France’s diminishing importance in world cuisine has prompted the government to create a gourmet university, which it yesterday promised will be nothing less than the “Harvard for the art of French cooking”.
The university will open in October in Reims, in the heart of Champagne country, and admit 70 French and 30 foreign students in its first year, according to Renaud Dutreil, minister for small business and consumption.
And why is French haute cuisine in crisis?
The suicide of Bernard Loiseau, France’s best-known three-star chef, drew attention to the difficulties the best restaurants experience in reconciling innovative menus and silver service with the commercial realities of high wages and massive fixed costs.
Mr Loiseau’s suicide coincided with widespread frustration at international criticism claiming that French chefs have failed to move on from nouvelle cuisine and have fallen far behind Spanish, Italian, American and even British rivals.
… many restaurateurs have been frustrated by the government’s failure to lower VAT on sit-down meals.
The election pledge by Jean-Pierre Raffarin, prime minister, to reduce the rate to 5.5 per cent from the current 19.6 per cent is facing German opposition in Brussels.
Did you get that right? London is now a more interesting dining spot than Paris. The core problems involve an overregulated French labor market and excessively high French taxes. Here is the full story.
On a related note, it is now the case that 35 percent of all French movies are shot outside of France, most commonly in the Czech Republic. French filmmakers are asking their government to set up a specially subsidized studio complex, to restore French cinematic competitiveness. It is time we start realizing that government regulations involve an aesthetic price, not just an economic burden.
Addendum: Here is additional commentary on relative French culinary decline, with useful links.
The cost of new drugs
In 2003, Joseph DiMasi, Ronald Hansen, and Henry Grabowski published an important paper in the highly-regarded Journal of Health Economics that estimated that the average cost of developing a new drug was around $805 million dollars. Hal Pawluk at Blog Critics repeats some nonsense from Public Citizen to claim that high research costs for pharmaceuticals are a myth and that this paper in particular is part of a conspiracy of pharmaceutical companies to raise prices. Frankly, the comments of the critics are laughable but not everyone sees the joke so I will explain.
Here is the number one criticism, the “major flaw,” in the DiMasi et al. study according to the critics.
1. The $802 million included $400 million that had nothing to do with bringing drugs to market. It was an estimate of how much the drug companies could have made by investing in some other way. This is an imaginary number that the drug companies do not pay.
(See also, Public Citizen who say these are “theoretical costs that drug companies don’t actually incur.”)
Firms spend on R&D from the day the development process begins up until the day the drug is approved for marketing which may be a decade or more later. But a dollar spent early in the process could have been earning interest in the bank for years before marketing approval is achieved. Recognizing this, DiMasi et al. calculate the cost of the drug as if all the money had been spent on the day the drug was approved.
Is this unreasonable? Well, suppose you lend me $5000 – how much would you want back in a year, in 2 years, in 10 years? The longer the loan period the more you would expect back when the loan came due, right? This is exactly the same calculation performed by DiMasi et al.
I challenge anyone who thinks this is imaginary money to lend me $5000. I guarantee to repay them the same return as they recognize as legitimate for the pharmaceutical companies.
Do only smokers benefit from moderate drinking?
Richard Ippolito says yes:
This paper uses data from the Health and Retirement Survey to measure the effects of alcohol on the incidence of morbidity and death. The study is able to reproduce the implied benefits of engaging in moderate levels of alcohol consumption, even after controlling for a large number of independent variables not usually available in health data sets. In fact, the controls work in the direction of supporting the benefits of engaging in even higher dose levels than conventionally recommended. It turns out, however, that smokers and quitters enjoy most of the benefits of unusually high alcohol consumption. Non-smokers evince modest benefits that are completely captured at very low dose levels. In general, the results suggest that studies of alcohol intake on health need to pay more attention to the characteristics of users. It may be that alcohol is especially beneficial for populations that are deficient in their health for other reasons like smoking or poor eating, whereas populations who follow good diets and do not smoke benefit very little from alcohol use.
Smokers should drink even more than we had thought, or quit smoking. Non-smokers won’t benefit much from drinking. Thanks to Newmark’s Door, one of the most useful yet underrated blogs, for the pointer.