SNEP Solution: Alternatives to the FDA Process

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One of the problem areas is anachronistic regulatory models. The FDA drug approval process is onerous. The FDA acts as if the worst error that it can make is to approve a drug that it later regrets approving. Essentially, it treats every drug as snake oil unless proven otherwise. As scientific progress speeds up, the FDA process turns into a significant bottleneck.

Bartley J. Madden and Gregory Conko propose,

However, after making a preliminary demonstration of safety and efficacy by completing Phase I trials and at least one Phase II trial, drug manufacturers would be given the option to place an experimental product on a parallel Free To Choose track that would enable patients, advised by their doctors, to make an informed choice to use the experimental drug. Drug makers could opt to continue pursuing a standard FDA approval—with all the attendant clinical testing that would require—concurrent with placing a drug on the Free To Choose track. Or, they could put off standard FDA-regulated clinical trials indefinitely, using Free To Choose track experience to guide future development decisions and randomized control trial designs.

Thanks to Alex Tabarrok for pointing me to the article. However, I think that there may be other instances in which the social cost of denying access to a drug is high relative to the risk that the drug will cause harm.

Somebody who is dying or enduring great suffering might have little or nothing to lose from trying an unproven remedy even before Phase I trials are complete.

As medicine becomes more customized, to the genetic makeup of the patient (or, in the case of cancer, the genetic makeup of the tumor), a question arises as to what is the relevant population for a clinical trial.

Two Affirmations

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1. From Jason Potts.

For conservatives, public funding of arts and culture is worthy when it supports the values of civilisation, which means a John Ruskin type view of the best of cultural heritage: museums, galleries, botanical gardens and opera will always do well here. What this group is hostile to are threats against that – barbarism – which come from the transgressive, edgy frontiers of arts and culture.

He offers a three-axis model take on arts funding.

2. From Tim Harford.

People are too used to the idea that someone else – the state or an insurer – will pay the bill. Free choice is nice but what everyone seems to prefer is free treatment.

Pointer from Mark Thoma. I call it the desire to be insulated from paying for health care.

The Elite vs. The Elect

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This lecture by Joseph Bottum was three months ago. It is based on his book An Anxious Age.

I do not think I can do justice to it in a blog post. In fact, the Q&A may be the best part, even though he seems to be rambling in his answers.

I might describe the overall theme as being that liberal-progressive politics is a substitute religion that is Protestant in character, with progressives serving as the elect. A few comments.

1. Although he is hardly the first person to offer this hypothesis, he is perhaps the most eloquent.

2. It is a very uncharitable hypothesis. It violates the Caplan Turing test (no progressive would recognize himself or herself in Bottum’s description).

3. Jonathan Rauch, during the Q&A, points out that if one were to apply similar reasoning to the Tea Party, it might also come across as a substitute religion. I think that Bottum’s best answer is to suggest that the Tea Party religion emerges as a reaction against the progressive religion.

4. The news in recent weeks has prominently featured the severe punishment meted out to business executives for violating speech norms. This may fit the religious zealotry paradigm.

5. Bottum suggests that a better term for progressive intellectuals than “elite” is “elect.” A difference is that an elite must prove its merit. An elect starts from an assumption of superiority and proceeds from there.

I am most interested in this last point. I think that it raises some interesting questions:

Do conservatives and libertarians also have an “elect” mindset? By that, I mean a mindset in which you believe that you occupy a moral high ground that others do not.

I believe that the three-axes model would say that conservatives and libertarians also have an “elect” mindset. It would say that the progressives think of themselves as the elect that fights for the oppressed against the oppressors, conservatives (including Bottum) think of themselves as the elect that fights to preserve civilization against barbarism, and libertarians think of themselves as the elect that fights for liberty against coercion.

As an aside, On my Krugman/Rothbard post, a commenter wrote,

Surely Rothbard’s intellectual lows of racism, sexism, and homophobia are lower than Krugman’s straw man arguments.

Bottum would put this comment squarely in the column of the new Protestantism. The evils of racism, sexism, and homophobia are, according to Bottum, examples of the metaphysical evil that has replaced original sin, witches or the devil. I got the sense that the commenter is excusing Krugman’s unreasonable tactics by using Rothbard’s views on race, gender, and sexual orientation as some sort of moral trump card. I hope that interpretation of the comment is wrong.

I cannot speak for Rothbard’s admirers, having never been one myself. But it would not surprise me if some of them share, or at least are willing to excuse, his troglodyte opinions. The point I was making in my original post is that both Rothbard and Krugman attract rabid followers who would never question the master’s words. Whereas with me, you will often have commenters who write, “I usually agree with you, but in this instance….” And I prefer that sort of audience.

The World is Complicated

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Tyler Cowen quotes Aaron Hedlund:

The flaw with both of these models, of course, is that they are representative household models where there is no inequality.

Fair point, but I do not see this as a fatal flaw in trying to adapt the Solow growth model to a theory of inequality. Suppose you have two types of representative households–workers and capitalists. The capitalists do all the saving.

The real trick, which is just as tricky in a model with one type of representative household, is to get the capital/worker ratio to rise without the return on capital falling. At most, that can happen for a while–not indefinitely.

Robert Higgs asks the Huemer Question

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He writes,

(1) Who do these people—that is, the state’s kingpins, Praetorian guards, bootlickers, and key private-sector supporters—think they are to treat us as they do?

(2) Why do nearly all of us put up with the state’s outrageous treatment?

…As for why we submit to the state’s outrages, the most persuasive answers have to do with fear of the state (and nowadays, for many, fear of self-responsibility as well), with apprehension about sticking one’s neck out when other victims may fail to join forces with those who resist first and, probably most important, with the ideological “hypnosis” (as Leo Tolstoy characterized it) that keeps most people from being able to imagine life without the state or to understand why the state’s claim to intrinsic immunity from the morality that binds all other human beings is the purest bunk.

Pointer from Don Boudreaux.

I believe that the answer is what I call FOOL–Fear Of Others’ Liberty. That is, we tolerate restrictions on our liberty because we want to live in a world where others’ liberty is restricted.

Elsewhere, Matt Mitchell quotes Higgs.

I believe crony capitalism—the alliance between business and government—is the biggest problem of our age. And the reason is that it is robust. As alternatives to free-market capitalism, communism and old-fashioned fascism are thankfully dead. And genuine socialism has no real constituency in America. But crony capitalism, unfortunately, has a very active, organized, well-funded, and vocal constituency. It is the greatest threat to our prosperity and our freedom.

These days, there are many people, not just big-time capitalist cronies, who benefit from government economic restrictions. People in licensed occupations, for example, will have Fear of Others’ Liberty.

SNEP Solution: Flexible Benefits and Extreme Catastrophic Health Insurance

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The problem is high implicit marginal tax rates on many people who are eligible for benefits from means-tested government programs. I think that a generic solution might consist of flexible benefits.

One approach would be to replace all forms of means-tested assistance, including food stamps, housing subsidies, Medicaid, and the EITC, with a single cash benefit. For this purpose, we might also think of unemployment insurance as a means-tested benefit.

The classic approach is the negative income tax. What I would suggest is a modification of the negative income tax, in which recipients are instead given flexdollars. These would be like vouchers or food stamps, in that they can be used only for “merit goods:” food, health care/insurance, housing, and education/training. One way to think of this is that it takes the food stamp concept and broadens it to include the other merit goods.

Flexdollars would start at a high level for households with no income and then fade out at rate of 20 percent of the recipient’s adjusted gross income. This “fade-out” would act as a marginal tax rate on income, so we should be careful not to set the fade-out rate too high.

Suppose that a household receives $7500 in flexdollars per member. Thus, a family of four with zero income would receive $30,000 in flexdollars. A family of four with $20,000 in income would lose 20 percent of $20,000, or $4,000, to fade-out, and hence would receive only $26,000. A family of four with a $50,000 income would receive $20,000. A family of four with a $100,000 income would receive $10,000. A family of four with a $150,000 income would receive nothing.

At the end of the year, unused flexdollars could go into flexible savings accounts. Tghese could be used for medical emergencies, down payments when buying a home, or to save for retirement.

There are two ways in which this represents an improvement over the current approach. First, it ensures that implicit marginal tax rates are low for benefit recipients. As it is now, people with low incomes easily can find that if they work they lose more in benefits than they obtain in pay. I think that is very corrosive, and I would put a high priority on restoring the incentive for people to work, while still giving them the means to meet basic needs.

The second benefit is that it gives recipients more flexibility and choice. Just as food-stamp recipients can decide for themselves what groceries to buy, flexdollar users can decide for themselves how much to allocate to housing vs. food vs. training.

One problem with a negative income tax or with flexdollars is that some families are needier than others, particularly with respect to medical issues. Someone with a lot of ailments and little in the way of resources will not have enough flexdollars to pay medical bills (remember that there is no longer Medicaid in this approach).

The solution I would propose would be to have taxpayers provide extreme catastrophic health insurance that kicks in if a household’s medical expenses exceed $30,000 in a year. For every additional dollar of medical expenses over $20,000, the government would pay 90 percent. For example, a household requiring $100,000 would receive $72,000. Of course, households would be permitted to obtain private insurance to cover lower levels of spending and/or to cover the remaining 10 percent of higher levels of spending. Overall, this idea bears some resemblance to the idea of “catastrophic reinsurance” that was floated about ten years ago.

I am thinking that we would eliminate Federal support for unemployment compensation. Instead, perhaps a private-sector form of unemployment insurance might emerge, and households would be able to buy this using flexdollars. If it turns out that nobody wants to spend their flexdollars on unemployment insurance, then that might be a sign that unemployment insurance is not such a great thing.

It might be best to phase in implementation. The first phase might be to fold in the EITC, food stamps, housing vouchers, and health insurance subsidies. Those are all programs that already take the form of cash or vouchers given to households. A later phase would be to replace Medicaid and unemployment insurance with flexdollars given to households. (Of course, if states want to continue to continue Medicaid or to provide unemployment compensation, without any Federal dollars to support the, they are welcome to do so. I doubt that would happen.) Another phase would be to wind down all forms of housing assistance, mortgage subsidies, Federal aid to education, training programs, Pell grants, and student loan programs, and replace these with flexdollars.

One challenge with implementation is in deciding which goods and services are eligible for flexdollars. Just as the food stamp program has to decide which groceries are eligible, the flexdollar program has to decide what counts as eligible medical services, housing services, and education services. Yes, that opens up the floodgates for lots of rent-seeking. If that gets really out of control, then it would be better to give people a straight cash benefit.

This is just a concept I am toying with. Criticism welcome.

Note that I once wrote an essay that I called The FlexDollar Welfare State that was not about an idea of this character. Instead, the essay criticized the George W. Bush Administration’s domestic policy initiatives. Actually, the best thing about the essay is the discussion of the oxymoron of “company benefits.”

What is interesting is that workers are not naturally suspicious of companies that pay “good benefits.” Apparently, most people believe that “good benefits” reflect generosity and sharing by the company, rather than a shrewd, calculated effort to save on compensation costs. My guess is that the people who see through the scam of “good benefits” tend to gravitate toward self-employment, which allows them to take their payments in cash and buy benefits themselves.

Basing Decisions on Rank-Order Framing

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Neil Stewart, Stian Reimers, Adam J. L. Harris write,

people behave as if the subjective value of an amount (or probability or or delay) is determined, at least in part, by its rank position in the set of values currently in a person’s head. So, for example, $10 has a higher subjective value in the set $2, $5, $8, and $15 because it ranks 2nd, but has a lower subjective value in the set $2, $15, $19, and $25 because it ranks 4th

Pointer from Robin Hanson. As usual, I wonder how well this works in a world where people learn from their past behavior. But this does provide a general theory of a lot of behavioral economics findings concerning biased decisions with respect to risk and time.

The Political Economy of Big Banks

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David Cay Johnston reviews All the Presidents’ Bankers, by Nomi Prins. He concludes,

But the banks are only big, not strong. Indeed, the “stress tests” to determine if the banks can withstand another financial shock are designed to test only for minor upsets, rigging the game in favor of the Big Six, which all engage in unsound practices, especially trading in derivatives. They remain big because of bad laws and enablers like Geithner and because politicians desperate for campaign donations listen to the pleas of bank owners more than those of customers. So the bankers live in grand style, lavished with subsidies that cost us more than food stamps for the poor. In return for this largesse, the bankers savage our modest savings.

Pointer from Mark Thoma. To me, Johnston’s rhetoric seems over the top, and if all Prin has to offer is rhetoric and conspiracy-mongering, then I see no need to read her book. Nonetheless, if you ask me about the political economy of big banks in this country, I would say that I believe that their profits come from rent-seeking in general and from the too-big-to-fail subsidy in particular. I think that breaking up the big financial institutions would provide a net public benefit.

However, I would caution you that Fragile by Design, by Calomiris and Haber, offers nearly the opposite perspective. For them, it is America’s historical hostility toward large banks, and the consequent fragmentation of banking, that is the original cause of fragility here. I think Prin would have a hard time arguing, as she apparently attempts to do, that concentrated banking has been a feature of the U.S. for over a century, when banking across state lines was all but impossible up until around 30 years ago. The other point in favor of Calomiris and Haber is the stability of Canadian banks, where the big six have a much higher market share than the big six in the U.S.

Question in the Comments

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On this post.

“Perhaps the [record company] who makes a risky bet on a raw [artist], and who take the time and effort to train her, should be entitled to a small portion of her lifetime earnings as she moves on to more lucrative employment. That would create a powerful incentive for [record companies] to devote real resources to building the skills of their [artists].”

How’d that work out?

1. It worked out better for the record companies when they had a monopoly on the means of distribution. The Internet tends to undermine that monopoly.

2. Regardless of technology, the supply of people who want to be in the entertainment business seems to be highly elastic. And the nature of demand for entertainment (people want to like stuff in part because other people like it) tends to produce winners-take-most outcomes. So a lot of artists will make low incomes, and a few will get lucky.

3. I think that artists cultivate an image of being unusual and self-made. So they will not shout it from the rooftops that their skills reflect real resources invested by major corporations. But my guess is that if the Beatles had been so determined to think of themselves as original that they had never taken any suggestions from their producer, they would have been just been the WannaBeatles.

Daniel Kahan Discovers Expressive Voting

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He said,

Look: What an ordinary individual believes about the “facts” on climate change has no impact on the climate.

What he or she does as a consumer, as a voter, or as a participant in public debate is just too inconsequential to have an impact.

No mistake she makes about the science on climate change, then, is going to affect the risk posed by global warming for him or her or for anyone else that person cares about.

But if he or she takes the “wrong” position in relation to his or her cultural group, the result could be devastating for her, given what climate change now signifies about one’s membership in and loyalty to opposing cultural groups.

Kahan advises climate worriers to try to engage in public discussion in ways that are less “culturally assaultive.” This assumes that climate worriers care more about climate policy than about asserting their moral and intellectual superiority over conservatives. The most charitable I can be is to say that I am willing to wait and see whether that is the case.