Bernie Sanders has introduced a bill to replace patent monopoly protection for drugs with awards based in part on Quality Adjusted Life Years added by the drugs.
This would eliminate the harm due to monopoly pricing. It might also cause some research to be redirected from “me-too” drugs to more innovative drugs. But I suspect that it’s common enough for what initially looks like a “me-too” drug to end up having valuable advantages that such an effect will be minor.
It would probably be a bigger help to people in developing nations than all the government spending misleadingly labeled as foreign aid.
Because politics will ensure that the idea is implemented suboptimally, I would prefer that something similar (e.g. patent buyouts) be implemented by a more responsible institution such as the Gates Foundation. But the patent system has enough problems that even this imperfectly written bill might improve on the status quo.
One strange effect of political reality is that the rewards are apportioned according to either benefits to U.S. patients or world patients, and the bill provides an awfully vague description of which rule will apply to which drug.
The bill allocates 10% of the rewards to orphan drugs, presumably because the lives of people with those diseases are worth more than those with common diseases.
The bill claims generics cost 85% less than patented drugs, but gets that figure from comparing overall generic prices with overall patented prices. If the cost of manufacturing drugs differs for old and new drugs, that will be misleading. The estimates I’ve found for same-drug price declines after generic competition starts suggest the price decline is more like 30% to 50%. So the bill’s claim that it can be financed by the reduced Federal government drug spending appear to be fiction.
Besides, if it were self-financing that way, wouldn’t it indicate a big reduction in the rewards to drug development? I want to see a good analysis of why $80 billion a year is adequate to substitute for patent exclusivity. My crude attempts at analyzing it suggests it’s too low, but not by a large amount.
(HT Alex Tabarrok)
Archive for October, 2007
Drug Prizes instead of Patent Exclusivity
Wednesday, October 31st, 2007
Chinese Stock Bubble
Tuesday, October 23rd, 2007Up to two months ago, I was not too excited by the claims of a bubble in the Chinese stock market. Maybe the stocks that trade only in China were at bubble levels, but the ones that trade in the U.S. or Hong Kong still looked like mostly good investments.
Much has changed since then. On October 17, PetroChina rose 14.5%, more than doubling in about two months. That was a one day gain in market capitalization of almost $60 billion, and a two month gain of $247 billion (doubling the market capitalization). I’ve seen similar but less dramatic rises in smaller Chinese stocks that trade in the U.S., but less on the Hong Kong stock exchange.
By comparison, the largest rises in market capitalization that I’ve been able to find in the technology stock bubble of 1999-2000 were a $50 billion one day rise in Microsoft on December 15, 1999, and a $250 billion rise (doubling) in Cisco which took four months.
I’m not saying that Chinese stocks are clearly overvalued yet, and I’m still holding some stocks in smaller Chinese companies that I don’t feel much urgency about selling. But the unusually strong and long lasting Chinese economic expansion, combined with the unusually frothy action in the stock market, are what I’d expect to be causes and symptoms of a bubble.
Bubbles in the U.S. have peaked when real interest rates rise to higher than normal levels. The Chinese government is keeping real interest rates near zero, and seems to think it can keep nominal interest rates stable and reduce inflation. That would be an unusual accomplishment under most circumstances. When combined with a stock market bubble, I suspect it could only be accomplished with drastic restrictions on economic activity, which would involve instabilities that the Chinese government has been trying to avoid by stabilizing things such as interest rates.
Without a rise in interest rates or drastic restrictions of some sort, it’s hard to see what will stop the rise in Chinese stocks. So I’m guessing we’ll see a bigger bubble than the U.S. has experienced. It’s effects will likely extend well beyond China.
Support the Troops
Monday, October 22nd, 2007Support U.S. troops by paying attention to their views on the presidential candidates and voting accordingly.
Ron Paul has received the most donations from people identified as current and retired military personnel of any presidential candidate, followed by Obama and McCain. That suggests withdrawal from Iraq may be more popular with the military than it is with other voters. McCain’s strength might be a response to his military experience and/or his opposition to torture. (HT Andrew Sullivan).
Cuban Health
Tuesday, October 16th, 2007A recent report makes surprising claims about the causes of the apparently impressive Cuban life expectancy data.
It says that shortages of cars, food, and reduced cigarette use had effects that were on balance healthy (I don’t see anything specific about whether a cigarette shortage caused the decline in smoking).
I had thought that there was strong evidence for the claim that increased wealth reliably correlated with increased health. It looks like I ought to examine the evidence on that subject more carefully.
Flynn Effect Explained
Monday, October 8th, 2007Book review: What is Intelligence?: Beyond the Flynn Effect by James Flynn
This book may not be the final word on the Flynn Effect, but it makes enough progress in that direction that it is no longer reasonable to describe the Flynn Effect as a mystery. I’m surprised at how much Flynn has changed since the last essay of his I’ve read (a somewhat underwhelming chapter in The Rising Curve (edited by Ulric Neisser)).
Flynn presents evidence of very divergent trends in subsets of IQ tests, and describes a good hypothesis about how that divergence might be explained by increasing cultural pressure for abstract, scientific thought that could create increasing effort to develop certain kinds of cognitive skills that were less important in prior societies.
This helps explain the puzzle of why the Flynn Effect doesn’t imply that 19th century society consisted primarily of retarded people – there has been relatively little change in how people handle concrete problems that constituted the main challenges to average people then. He presents an interesting example of how to observe cognitive differences between modern U.S. society and societies that are very isolated, showing big differences in how they handle some abstract questions.
He also explains why we see very different results for IQ differences over time from what we see when using tests such as twin studies to observe the IQ effects of changes in environment on IQ: the twin studies test unimportant things such as different parenting styles, but don’t test major cultural changes that distinguish the 19th century from today.
None of this suggests that the concept of g is unimportant or refers to something unreal, but a strong focus on g has helped blind some people to the ideas that are needed to understand the Flynn Effect.
Flynn also reports that the rise in IQs is, at least by some measures, fairly uniform across the entire range of IQs (contrary to The Bell Curve’s report that it appeared to affect mainly the low end of the IQ spectrum). This weakens one of the obvious criticisms of David Friedman’s conjecture that modern obstetrics caused the Flynn Effect by reducing the birth related obstacles to large skulls (although if that were the main cause of the Flynn Effect, I’d expect the IQ increase to be largest at the high end of the IQ spectrum).
It also weakens the inference I drew from Fogel’s book on malnutrition. Flynn does little to directly address Fogel’s argument that the benefits of improved nutrition show up with longer delays than most people realize, but he does report some evidence that the Flynn Effect continues even when the height increases that Fogel relies on to measure the benefits of nutrition stop.
Flynn reports that the Flynn Effect has probably stopped in Scandinavia but hasn’t shown signs of stopping in the U.S. His comments on the future of IQ gains are unimpressive.
There are a few disappointing parts of the book near the end where he wanders into political issues where he has relatively little expertise, and his relatively ordinary opinions are no better than a typical academic discussion of politics. In spite of that, the book is fairly short and can be read quickly.
One interesting experiment that Flynn discusses tested whether students preferred one dollar now or two dollars next week. The results were twice as useful in predicting their grades as IQ tests. Flynn infers that this is a test of self control. I presume that is part of what it tests, but I wonder whether it also tests whether the students were able to realize that the testers’ word could be trusted (due to better ability to analyze the relevant incentives? or due to a general willingness to trust strangers because of how the ways they met people selected for trustworthy people?).
Farewell to Alms
Monday, October 1st, 2007Book review: A Farewell to Alms: A Brief Economic History of the World by Gregory Clark
This book provides very interesting descriptions of the Malthusian era, and a surprising explanation of how parts of the world escaped Malthusian conditions starting around 1800. The process involved centuries of wealthier people outreproducing the poor, and passing on traits/culture which were better adapted to modern living. This process almost certainly made some contribution to the industrial revolution, but I can’t find a plausible way to guess the magnitude of the contribution. Clark is not the kind of author I trust to evaluate that magnitude.
His arguments against other explanations of the industrial revolution are unconvincing. His criticisms of institutional explanations imply at most that those explanations are incomplete. But combining those explanations with a normal belief that knowledge/technology matters produces a model against which his criticisms are ineffective. (See Byran Caplan for more detailed replies about institutional explanations).
He makes interesting claims about how differently we should think about the effects in Malthusian world of phenomena that would be obviously bad today. E.g. he thinks the black plague had good long-term effects. He made me rethink those effects, but he only convinced me that the effects weren’t as bad as commonly believed. His confidence that they were good depends on some unlikely quantitative assumptions about benefits of increased income per capita, and he seems oblivious to the numerous problems with evaluating these assumptions. His comments in the last few pages of the book about how little average happiness has changed over time leads me to doubt that his beliefs are consistent on this subject.
While many parts of the book appear at first glance to be painting a very unpleasant picture of the Malthusian era, he ends up concluding it wasn’t a particularly bad era, and he describes people as being farther from starvation than Robert Fogel indicates in The Escape from Hunger and Premature Death, 1700-2100. Their ability to reach somewhat different conclusions by looking at different sets of evidence implies that there’s more uncertainty than they admit.
He does a neat job of pointing out that economists have often overstated the comparative advantage argument against concerns that labor will be replaced by machines: horses were a clear example of laborers who suffered massive unemployment a century ago when the value of their labor dropped below the cost of their food.