Thursday, May 29, 2008

Government and the Market

I saw this post today and the following two paragraphs jumped out at me:

That we instinctively work to improve our own lot first is why progress for all happens so much faster in free, open marketplaces under the rule of law. There, everyone can trade to make themselves better off: specialization and comparative advantage means that trade benefits both sides. Trade is not zero-sum; we grow the whole pie by specializing and trading the results of our work. You go off and work to make the medicine I want, and many people like myself give some our our resources to purchase the end result. Both sides benefit, exchanging - what is for them - lesser value to receive greater value.

There is no open marketplace for medical technology in the developed world, however. Instead, we see a very different set of incentives dominating the state of research and development. Regulatory bodies like the FDA have every incentive to stop the release of new medicine: the government employees involved suffer far more from bad press for an approved medical technology than they do from the largely unexamined consequences of heavy regulation. These consequences go far beyond the obvious and announced disapproval of specific medical technologies: the far greater cost lies in all the research, innovation and development that was never undertaken because regulatory burdens ensure there would be no profit for the developer. Personal gain for the regulator is thus to destroy the gains of people they will never meet, the exact opposite of what occurs in an open marketplace.


I support markets.

11 comments:

Ronnie said...

Well then don't complain about ineffective, tainted, high-side effect medications ever again since quality control is the whole reason for all the regulation and bureaucracy. When you have a completely free market you end up like China with many medications sold that have no ability to do what they say they do, heavy contamination, and not enough testing for side effects. The first paragraph is completely logical and all very true, the second is extremely misleading and ultimately scary. We have near absolute confidence in our system of modern medicine because of the FDA, without it more people would be dying because they would naively be using worthless and possibly dangerous medication. A free market implies perfect knowledge, and that would be nowhere near possible in an unregulated medical market.

There are already special rules and exceptions for life threatening disease medication so the supposed cost of "research, innovation and development that was never undertaken" is at the minimum required for safety. I would rather be 99.99% certain that my allergy medicine won't kill me compared to not having a possibly better medication not make it to the market due to to inadequate funding.

Donalbain said...

A dogmatic belief in markets is as silly as a dogmatic belief in government. Sometimes a government works to provide a service. Sometimes the market works. Sometimes a mix of the two works.

Darren said...

That's an excellent straw man you've built there, donalbain. And the way you thrashed it--most impressive.

allen (in Michigan) said...

> We have near absolute confidence in our system of modern medicine because of the FDA, without it more people would be dying because they would naively be using worthless and possibly dangerous medication.

Two words: fen.

If faith in the FDA were "near absolute" then why does the tort system view the drug industry as a set of concentric circles with a big, fat dollar-bill laden bullseye at the center? Shouldn't "near absolute" faith guarantee near absolute immunity from law suits?

Oh, and leave us not forget the shining moment in the FDA's history which proponents drag out, dust off and parade around like a religious icon any time there some passing shadow of doubt that might dim the agency's reputation: thalidomide. Of course the agency then spent the next forty years making it all but impossible to use the drug for *anything*, even though the dangers of the drug were long since established and it's value considerably expanded over its original role as a sleep aid, lest the gleam of the agency's golden moment take on a certain brassy tone. Oh yeah, it's also worth noting that thalidomide would've made to the American market but for FDA bureaucratic foot-dragging and not due to their Argus eye.

> A free market implies perfect knowledge, and that would be nowhere near possible in an unregulated medical market.

Sorry, a free market doesn't imply perfect knowledge. It implies some faith that contracts can be enforced and property rights respected. The market adapts to imperfect knowledge via the pricing mechanism.

If your imperfect knowledge leads you to believe that the price of petroleum is going up then you may implement that knowledge based on your certainty and willingness to take risks. Is your knowledge perfect? Obviously not but it needn't be. Your knowledge simply has to be perfect enough to satisfy the criteria you've decided on as a prerequisite to voluntarily entering into a transaction.

> There are already special rules and exceptions for life threatening disease medication so the supposed cost of "research, innovation and development that was never undertaken" is at the minimum required for safety.

And those special rules and exceptions were the result of the legislative process which someone once observed ought not to viewed by anyone with a high opinion of the law.

Those exceptions weren't created by the FDA since as employees of the executive branch their scope of action and responsibility is circumscribed by the law under which they operate.

It took a good twenty years for so-called "orphan drug" legislation to make its way through Congress while tens or hundreds of thousands of people suffered and died. The really ironic thing is that the agency in which you repose so much trust, and the bureaucrats who work for that agency, would've been breaking the law, destroying their careers and damaging the public trust if they did anything to help those suffering and dying people by contravening the law that empowers their agency.

Ronnie said...

Again, I'm not saying past actions by the FDA have been perfect. My reason for stating "near absolute" is because of those lawsuits. Very few drugs end up having unknown side-effects that didn't show up in testing whether it be due to poor testing practices, rarity, or malice.

A completely free market implies perfect competition which implies perfect knowledge. But my main point wasn't to get into a debate over economic definitions, it was to show how little we would know about the medication we take if it wasn't for the FDA. Without the FDA we would have the problems China does where many of their drugs haven't had third party testing and there is no way for the consumer to know whether or not the product works as intended. Since most medical problems can eventually fix themselves one can't possibly tell if a drug is working or not so ineffective medicines are sold to those who could use effective medication and the public has no real method to tell the difference between useful and worthless medication.

It seems that all your complaints over my "special rules and exceptions" section of my post have nothing to do with what I was arguing. Yes, people died because of FDA decisions, whether or not those decisions were mandated by law or not is not important, the important part is that now such an argument against the FDA is extremely weak after those flaws have been correct. Arguing against the FDA 20 years ago before the changes to the laws and regulations, those arguments over drugs not getting to market were extremely valid, but that's not the case anymore. You can complain about the past of the FDA and I'd say most people would be correct in doing so, but condemning the present FDA over it's past and forgetting how it has successfully helped support safe, effective Western medicine as whole just shows a real lack of depth in thought.

allen (in Michigan) said...

> A completely free market implies perfect competition which implies perfect knowledge.

Leaving aside the "near absolute confidence" you seem to think the FDA deserves, your insistence that perfect knowledge is a perquisite for perfect competition is still without support or even explanation. In fact, there's no such requirement since a perfect market is a chimera. A non-existent requirement for a non-existent situation.

A free market occurs whenever two parties determine that there's advantage to both in the act of exchanging considerations of value.

It doesn't matter whether it's Huckleberry Finn swapping his dead cat for Tom Sawyer's Barlow knife or Donald Trump swinging the financing for a billion-dollar casino as long as both, or all, parties are satisfied that there's advantage to the exchange. Then it's a free trade which is what makes up the free market. Knowledge needn't be perfect. It just needs to be perfect enough.

> You can complain about the past of the FDA and I'd say most people would be correct in doing so, but condemning the present FDA over it's past and forgetting how it has successfully helped support safe, effective Western medicine as whole just shows a real lack of depth in thought.

I'm not condemning the past of the FDA or the present. I'm pointing out that the agency isn't a source of perfect, or even unbiased, knowledge. That it isn't elevated above filthy capitalists by virtue of being unmoved by the prospect of morally suspect profits. Profits, it turns out, covers a wider range of possibilities then the accumulation of personal wealth and government agencies are most assuredly vulnerable to the temptation of the sorts of profits available to them.

A failure, or a refusal, to appreciate that advantage is sought by government employees may make you feel good about the veracity of those employees but it hardly has any effect on their actual veracity. That's controlled by the environment and the rules of the environment, in which they're employed.

And since I'm not well enough brought up to let a cheap shot pass unanswered, your insistence that a perfect market requires perfect knowledge has the feel of a portentous, and pretentious, pronouncement of an English lit prof who'se struggled through a chapter or two of "Das Kapital" and way too much Noam Chomsky. My suggestion is that you test your depth of thought on a copy of the "The Ultimate Resource" by Julian Simon. Not only does he have more worth saying then Chomsky, he had more fun saying it.

Darren said...

Actually, he's a college freshman--by definition a bit inexperienced in the ways of the world, a bit idealistic, and a bit predisposed to having a mother or father figure (the government) take care of everything.

I doubt he intended a slight, though, but I've been wrong before--just not very often :-)

Ronnie said...

I give up. You win.
xkcd
Looking back I can't believe I actually have wasted so much time doing this :)

allen (in Michigan) said...

Well, the bulk of my response was aimed at the unnamed scholar who proffered the "perfect knowledge as a prerequisite for a perfect market" formula as an effort-free means of demonstrating scholarship. As I've stated before, much of the attraction of the left lies in the inexpensive nature of the goods it offers - risk-less courage, effortless scholarship, cost-free generosity and self-evident superiority. Ronnie may have taken the brunt of the blast due to proximity but my target was the irresponsible ideologue using their position of authority as a teacher.

That would mean that the slight wasn't so much intended as it was inevitable there being only three reasons - stupidity, insanity or immorality - to refuse to accept various truths.

To get back to the post, you'll note that Ronnie, and by extension his mysterious Jedi master, don't even bother to engage the ideas in the post preferring instead to bulldoze the discussion with unsupported generalities. Partly I think that's due to the inescapable conclusion that the injection of government regulation inevitably drives up costs and drives them up in a way which precludes individual decision.

My estimation of the safety and cost of a drug are immaterial. The FDA will decide how much risk I ought to take and how much I ought to pay to take that risk. Is that the right balance of risk and reward for me? Doesn't matter. The legislation empowering the FDA and the administrative requirements of the FDA will determine those factors.

You can see how well that homogenizing of the population works in those "orphan" drugs.

By effectively setting a lower limit on the population of prospective patients for a given drug the FDA denied a whole group of people access to the benefits of pharmacological science. The response? A bit of tinkering with the law that controls the FDA. But that just illuminates a different limitation of the FDA; those with sufficient political influence to get law passed to modify the FDA and those without.

Darren said...

xkcd is awesome! My favorite is this one.

allen (in Michigan) said...

> I give up. You win.

Har! As if that'd be enough to motivate me to spend fifteen seconds on a reply. No, the only reason to bother with a repetition of the politics of the morally blemishless is that maybe, just maybe, someone'll uncork a surprise.

A point of view that isn't simply a regurgitation of the weighty words of an intellectual garden troll but the result of some effort to test, distill and examine the ideas. Some slant or point-of-view that I haven't previously considered.

So far, no surprises.