Pain- and trade-killers

The un-American history of painkillers.

Paul Krugman, blogging on Trump’s half-proposal for a border tax:

To be fair, these tax-and-trade issues are kind of two-ibuprofen stuff at best. But confusions persists even longer than usual when they serve a political purpose.

For the record, ibuprofen was discovered by Boots in England. Paracetamol is basically German, as was the synthesis of aspirin, the active ingredient of an ancient herbal remedy known to the Sumerians. The opioid painkillers are also of great antiquity. With only an all-American pharmacopoeia, you would just have to endure your trade headaches.

Art on the economic rack

All what I said yesterday about the economics of content applies in spades to music.  US recorded music sales (CDs, streaming, and LPs) are down about half in real dollars since 2006. Musicians depend on live performance, and treat their CDs as advertising for concerts: live performance revenue is about double recording sales.

What this means is that the music itself has to change: every gig is under pressure to get as many people in the seats as possible. Some music is designed for this: it’s simplified to survive amplification in a stadium,  where what you see from distant seats is out of sync with the garbled auditory signal, and it can be improved with fireworks, lighting, and I guess ecstasy distribution.  Some music is not suitable for this kind of venue, but a series of club dates or performances in 500-seat halls with good acoustics cannot support a band, or even a soloist. The relentless pressures resulting from the impossibility of monetizing nearly all person-hours of music listening (recorded content) leads to ridiculous, absurd events like the concert for which I just received an ad from Cal Performances: Yo-Yo Ma, Edgar Meyer, and Chris Thile (great, wow!)…at the 8500-seat open-air Greek Theatre at Berkeley.  At the what??!!

These guys are virtuosi of acoustic instruments, none nearly loud enough to be heard in that space. Their musicianship comprises the subtlety of fine distinctions in timbre,  intonation, and rhythm, absolutely none of which will be audible potted up for that venue and bounced around in it, not to mention that from most of the seats (toward the rear), Ma’s right arm will zig while the sound he’s making zags.  How is a pasticcio like this a better experience than hearing the same performance as recorded in a good studio, perhaps as a video? Nothing wrong with big crowds getting together for a social event, but this is a truly bizarre sound track to accompany that.

What about dynamics, if timbre, pitch and rhythm don’t work? Well, another interesting thing has happened to music, more gradually, over the last century or so. Once upon a time, loudness was the most expensive element of music with which to get a big effect: to sound twice as loud, you need ten times as many musicians, which is why the chorus at the opera doesn’t sound anything like fifty times as loud as the soloist.  Now, dynamics is the cheapest element; just turn up the pot on the mixing board (or your iPhone)!  At the same time, the relative (to everything else) cost of excellent musicians and singers for live performance has gone up enormously because they have seen none of the productivity improvements that have made almost everything else cheaper–it still takes two person-hours of trained talent to perform a half-hour string quartet   same as it took in Mozart’s time.  So: make it louder, enough louder that an audience accustomed to really loud will think it is hearing something special. Sound levels, in earphones and at venues, drive a positive feedback loop that has measurably deafened the audience with volumes OSHA would forbid in a workplace: they can’t hear subtleties at higher frequencies, so the only thing to do is…louder still!

If Ma and his pals could make a living from recordings, they wouldn’t have to collaborate in deeply anti-musical outrages like this concert. Fewer people would be able to attend live concerts, but those who did would actually hear the music.  How to allocate the scarce resource of small-hall seats at top-level talent events, other than by price and scalping, is a legitimate problem, but making a hash of this kind of music through zillion-watt amplification in a stadium isn’t distributing the experience.

 

 

The end of big trade deals

In their current form, large international trade negotiations are politically illegitimate.

The last global trade deal was the Uruguay round, finally agreed in 1994 after seven years of negotiations. The deal included the setting up of the WTO, a stronger organization than GATT, which it replaced. But no further global trade deal has been agreed. The WTO launched the Doha round  in 2001, but it has fittingly run into the sand.

Trade negotiators are nothing if not obstinate, and tried a new tack. If a global deal is too difficult, why not try regional ones? So TTIP,  the transatlantic deal, and TPP,  the Pacific one, were born. Well, conceived.

Both are moribund. Hollande has declared France’s opposition to TTIP in its current form, which is also under sustained attack in the European Parliament, especially over ISDS.  [Update 30/8: the French trade minister has called for the talks to be suspended. If this is a negotiating tactic, it’s reckless hardball – it would be very hard to walk back.] TPP is opposed by both Clinton and Trump. Obama still officially hopes to get TPP through the Senate in the lame duck session. (See supportive comment from Harold Pollack.) Do you credit this? McConnell has not shifted from his policy of Adullamite obstruction of every Obama proposal. Even if he allowed a vote, would senators really vote against the platforms of their parties, which accurately reflect a hostile public opinion?

This widespread failure of the trade liberalisation agenda is usually put down to a widespread turn in public opinion against free trade, now seen by many on both left and the populist right as a callous neoliberal plot to enrich capitalists at the expense of workers. (It is true that the compensatory support for workers who lost their jobs as a result of past agreements like NAFTA somehow failed to materialise.) Some trade advocates resort to the absurd argument that the failure of TTIP and TPP would put existing trade at risk. But there is very little support for proposals to roll back existing trade agreements, from NAFTA to Uruguay to the European single market. There is something in the trade negotiation process of these new deals that gets voters’ goat.

Let me nail up a thesis to the trade church door. Modern trade negotiations are illegitimate. In their current form they cannot possibly lead to a democratically acceptable result. That is why they are doomed to fail.

The argument has two parts. Continue reading “The end of big trade deals”

Developing new drugs

All over the world, new pharmaceuticals are developed more or less the same way. Governments and foundations spend money on fundamental research on diseases, but once a specific molecule has been identified – and sometimes long before that – the focus shifts to the private sector.

A pharmaceutical company puts its own money first into animal trials, then into human safety studies, then into small-scale efficacy trials, and finally into the big, expensive “Phase III” trials required to obtain approval from FDA or its equivalents elsewhere. About 80-90% of the time, the compound turns out to be a loser.

In the minority of cases in which the drug actually gets approved, the average time-lag between starting work and getting it on the market is most of a decade. Since the pharma business is risky, the cost of capital is high. That’s the justification Big Pharma offers for the price-gouging that patent protection allows: if the payoff isn’t there, the R&D won’t get done.

If you’re going to risk millions of dollars that costs you 10% per year on a longshot, the payoff if it hits needs to be very large. So pharmaceutical companies focus on “blockbuster” drugs: those with potential revenues of more than $1B/yr. That means drugs that (1) have to be taken frequently – ideally, every day for a lifetime – and (2) deal with the diseases of people with good health insurance.

None of this makes anything but a twisted sort of sense. It leads to not enough new drugs and to excessive drug pricing. In particular, it leads to the absurd situation where there’s an obvious social need to develop a drug but no economic mechanism for doing so. Today’s big example is a Zika vaccine, but the same is true of antibiotics and of innovative pain-relief formulations (e.g., pain-appropriate dosages of buprenorphine, opiate-and-antagonist combinations) with less addiction risk.

There are lots of proposals for fixing the whole system: my personal favorite is to at least partially replace patent protection with large cash prizes as the incentive for bringing new drugs through the approval process. (Since the U.S. federal government winds up bearing much of the cost of pharmaceuticals anyway – through Medicare and Medicaid, through VA health, through health coverage for its own military and non-military employees and their dependents, and finally through the tax deduction for employee health benefits – it could write some very big checks and still come out ahead, if the result was marginal-cost pricing for the drugs themselves.)

But in the meantime, there’s something much simpler. If drug development were financed at Treasury rates rather than at the pharmaceutical-company cost of capital, lots of socially important projects that aren’t financially attractive now would become attractive. That could be done by creating a publicly-owned pharma R&D firm to get socially needed drugs through the FDA process and license the resulting patents to generic drug manufacturers, or by lending the money at concessionary rates to current phama outfits to develop drugs serving identified needs and then sell them at controlled prices.

Of course the details matter – the details always matter – but in this case almost any set of details would leave us much better off than we are now.

Footnote

There’s a broader issue here: Right now, the whole world is eager to lend money to the U.S. Treasury, and as a result we can now borrow money for 30-year terms at 2.2% nominal. If our political system can just get out of its fixation on deficits and debt, we ought to be borrowing some of that money and investing it in things with good long-term returns: not just drug development, but R&D more generally (especially, I would say, basic science), infrastructure, and education.

One side effect would be to boost final demand, kicking the economy out of the slow growth that has been so marked since the beginning of the Great Recession.  There’s not much wrong with this country that ten years of tight labor markets couldn’t cure.

Trade, Trump, and downward class warfare

Update

Brad DeLong concurs.

A conversation with my Marron Institute colleague Paul Romer yesterday crystallized an idea I’d been toying with for some time. In a nutshell: opponents of taxing the rich have destroyed, on a practical level, the theoretical basis for believing that free trade benefits everyone.

The Econ-101 case for free trade is straightforward: Trade benefits those who produce exports and those who consume imports (including producers who use imported goods as inputs). It hurts the producers of goods which can be made better or more cheaply abroad. But the gains to the winners exceed the losses suffered by the losers: that is, the winners could make the losers whole and still come out ahead themselves. Therefore, trade passes the Pareto test.

[Yes, this elides a number of issues, including path-dependency in increasing-returns and learning-by-doing markets on the pure-economics side and the salting of actual agreements with provisions that create or protect economic rents on the political-economy side. It also ignores the biggest gainers from trade: workers in low-wage countries, most notably the Chinese factory workers whose parents were barefoot peasants.]

So when the modern Republican Party (R.I.P), in the name of “small government” and opposition to “class warfare,” set its face against policies to redistribute the gains from economic growth, it destroyed the theoretical basis for thinking that a rising tide would lift all the boats, rather than lifting the yachts and swamping the trawlers. Free trade without redistribution (especially the corrupt version of “free trade” with corporate rent-seeking written into it) is basically class warfare waged downwards. Continue reading “Trade, Trump, and downward class warfare”

The most important book of 2015

I have wrung my hands in the past, in this space and elsewhere, about the collapse of a workable market for digital goods.  I find it hard to get people as excited about this as I am–if I still had enough hair for anyone to notice it would be on fire–but I have some help from Scott Timberg now  so I am going to try again.  Short version: buy this book, Culture Crash, and read it. Now. I believe it is the Piketty of 2015, and the first book I’ve stayed up to read straight through at one sitting–sometimes literally in tears, both of pain and of rage– in years.  It is not just about culture, but about whatever really big issue you lie awake worrying about.

Long post (no, not a substitute for the book; read it), get a cup of coffee  .

Continue reading “The most important book of 2015”

If no-one can hear us…

Last week was the annual research conference of the Association for Public Policy Analysis and Management. For those who do not frequent academic conferences, this is a get-together of people like me and several of yr. obdt. bloggers, where we break up into “sessions” of about an hour and a half, in each of which three or four people present recent research.  A program committee of really noble souls puts these together out of proposals so they have some internal coherence: four papers about urban crime, or three about state pension accounting, and like that. Hour after hour of smart people saying more interesting things than you can possibly absorb.
The outgoing APPAM  president gives an address, on a topic of his or her choice, that is well-attended and subsequently published in the organization’s Journal of Policy Analysis and Management.  This year we heard from one of my  very favorite colleagues, Angela Evans, formerly of the Congressional Research Service and now at UT Austin scarfing up every teaching award in sight.
I thought it was an excellent talk about stuff on which Angela and I almost entirely agree, but at about 49:00 she has one of those moments professors anticipate with, um, qualified enthusiasm: in front of her whole tribe, and the world on YouTube, one of her own students asks an excellent question (heart leaps) to which she has only half of a good answer (heart palpitates): how is all this excellent policy analysis and research supposed to get to the public? Angela has always been all over the need for pointy-heads to explain their stuff in languages people can understand, and not browbeat them with regression coefficients and the kind of technical stuff we play catch among ourselves with.  But she didn’t say a word about  the most important current challenge to good governance in a democracy (and othercracies), namely the technology-driven collapse of the business model for diffusion and creation of content.

Continue reading “If no-one can hear us…”