Saw that piece of his this morning and I was incensed. There's also just the fact that his proposals aren't going to happen but price controls are actually happening. Thanks for writing this.
Scott Alexander's argument for price controls being worse than Mao seems a little strange. I mean, where is this 0.7 or even 2 year reduction coming from? If it's at the end of life, elderly people dying a bit earlier is not some great tragedy, they're definitely at an age where everyone involved should have made peace with death. And if it isn't, clearly it must be a very small number of younger people having their lives cut short.
But regardless, if price controls result in such a reduction, then they make no sense, since surely the idea is that they would result in greater cumulative lifespan + quality of life? If they don't, there is no point.
EDIT: Ah, I was mistaken, as Bentham's Bulldog points out further down, we could get this 0.7 if 1 in 40 people were to lose 40 years of their life, which would of course, be a catastrophe (and a largely invisible one). I stand corrected, this policy could potentially be worse than Mao!
This is pretty far from my area of expertise (if I even have one of those), but it seems as though the current Medicare drug price negotiations aren't expected to have much impact on innovation (due largely to the specific drugs involved): https://www.nature.com/articles/s41587-023-02096-w
Of course, the situation could change if the negotiation were expanded to cover other drugs.
So I'm a little confused about this- and I must confess I'm in a screaming hurry at the moment so maybe I've missed something- but I would of thought that the clear point here in any debate price caps would be *are the drugs currently in patent*. From the standpoint of economic theory, this makes all the difference in the world. Both you and Yglesias understand this point I'm sure but I think you should both lead with this.
The standard economic theory says the price cap monopolies, and if we feel that there are benefits not captured by this arrangement, to have the government subsidse research directly, rather than extracting monopoly profits from patients as a method of subsidising research- this is because of the deadweight loss that monopolies impose. This could be seen as like subsidising a positive externalities, although perhaps here what we are really concerned about is not externalities per se, but benefits to patients that we feel the market undervalues because of limitations in ability to pay.
On drugs outside monopolies, standard economic theory would advise not price capping generics unless there is some special reason they have monopoly power- and if there is a special reason they have monopoly power, either price capping them, or if feasible, removing the reason.
I really like the proposal you mention in your other post- similar to Stiglitz's prizes not patents. I think this is the best solution, but don't see what's wrong with a cap plus subsidy at the level judged socially optimal.
FWIW: a nice paper on theoretical incentive design for patents is Hopenhayn, Llobet, and Mitchell (2006) "Rewarding Sequential Innovators: Prizes, Patents, and Buyouts".
Is it plausible that during the 12 year period the pharma company does actually get paid more per dose (in the US) than that dose is worth in order to partially compensate them for the profits they miss out on after the patent expires? This only seems possible given that they have a monopoly and that drugs aren’t really priced in response to market demand, but correct me if I’m wrong here. I ask because that could help explain why people are SO angry at pharma companies (beyond regular anti capitalist sentiments)
I completely agree. What we should do is deregulate pharmaceutical industries significantly and ensure that regulations which do exist target mostly non-innovative business practices. The benefits of better drugs are indeed astronomical.
The pharmaceutical industry seems like a very interesting outlier to me, an industry that suffers heavily from externalized profits, because if you look at the economy as a whole, the question of the "profitability" of meds is mostly ridiculous.
Saw that piece of his this morning and I was incensed. There's also just the fact that his proposals aren't going to happen but price controls are actually happening. Thanks for writing this.
Hopefully the industry can profit without continuing to medically abuse animals.
Scott Alexander's argument for price controls being worse than Mao seems a little strange. I mean, where is this 0.7 or even 2 year reduction coming from? If it's at the end of life, elderly people dying a bit earlier is not some great tragedy, they're definitely at an age where everyone involved should have made peace with death. And if it isn't, clearly it must be a very small number of younger people having their lives cut short.
But regardless, if price controls result in such a reduction, then they make no sense, since surely the idea is that they would result in greater cumulative lifespan + quality of life? If they don't, there is no point.
EDIT: Ah, I was mistaken, as Bentham's Bulldog points out further down, we could get this 0.7 if 1 in 40 people were to lose 40 years of their life, which would of course, be a catastrophe (and a largely invisible one). I stand corrected, this policy could potentially be worse than Mao!
This is pretty far from my area of expertise (if I even have one of those), but it seems as though the current Medicare drug price negotiations aren't expected to have much impact on innovation (due largely to the specific drugs involved): https://www.nature.com/articles/s41587-023-02096-w
Of course, the situation could change if the negotiation were expanded to cover other drugs.
So I'm a little confused about this- and I must confess I'm in a screaming hurry at the moment so maybe I've missed something- but I would of thought that the clear point here in any debate price caps would be *are the drugs currently in patent*. From the standpoint of economic theory, this makes all the difference in the world. Both you and Yglesias understand this point I'm sure but I think you should both lead with this.
The standard economic theory says the price cap monopolies, and if we feel that there are benefits not captured by this arrangement, to have the government subsidse research directly, rather than extracting monopoly profits from patients as a method of subsidising research- this is because of the deadweight loss that monopolies impose. This could be seen as like subsidising a positive externalities, although perhaps here what we are really concerned about is not externalities per se, but benefits to patients that we feel the market undervalues because of limitations in ability to pay.
On drugs outside monopolies, standard economic theory would advise not price capping generics unless there is some special reason they have monopoly power- and if there is a special reason they have monopoly power, either price capping them, or if feasible, removing the reason.
I really like the proposal you mention in your other post- similar to Stiglitz's prizes not patents. I think this is the best solution, but don't see what's wrong with a cap plus subsidy at the level judged socially optimal.
Your linked reference doesn’t, as I understand it, say 78% of new drugs come from the US, but that they were approved in the US first.
FWIW: a nice paper on theoretical incentive design for patents is Hopenhayn, Llobet, and Mitchell (2006) "Rewarding Sequential Innovators: Prizes, Patents, and Buyouts".
Is it plausible that during the 12 year period the pharma company does actually get paid more per dose (in the US) than that dose is worth in order to partially compensate them for the profits they miss out on after the patent expires? This only seems possible given that they have a monopoly and that drugs aren’t really priced in response to market demand, but correct me if I’m wrong here. I ask because that could help explain why people are SO angry at pharma companies (beyond regular anti capitalist sentiments)
I completely agree. What we should do is deregulate pharmaceutical industries significantly and ensure that regulations which do exist target mostly non-innovative business practices. The benefits of better drugs are indeed astronomical.
The pharmaceutical industry seems like a very interesting outlier to me, an industry that suffers heavily from externalized profits, because if you look at the economy as a whole, the question of the "profitability" of meds is mostly ridiculous.