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September 15, 2011 Leave a comment

I’ve been redditing a lot lately, under the name Pendergrass because that’s who I was listening to when I made my account and I’m not very creative when it comes to making using names. Mostly on /economics.

I don’t know why… it is kind of a sad reflection of the state of affairs in my life that I’ve been spending hours a day engaging in economic and political arguments with people whose sense of surety comes from reading Paul Krugman or Naked Capitalism.

I do know why: it has been making me a better writer, more easily able to state my opinion clearly and concisely (regular readers <all two of you… hi Mom!> are probably in disagreement with this self-assessment).

Mainly I am just trying to be a good Samaritan by clearing up misconceptions and explaining technical stuff. Generally, most of the feedback I get is positive, which I guess is another reason I go there (to get feedback). At the end of the day, if I can light a candle for someone, I guess it makes it all worthwhile. If I seem so nonplussed about it, it’s because the level of discussion leaves something to be desired. It is better than most of the internet, but it is still the internet…

I was going into /politics at first but realized that it is pretty useless leaving meaningful comments there, since its all just an ideological pep rally. /economics is only slightly better than /politics in this regard.

One thing that both groups have made me notice is the divide between liberal people’s understanding of economics, and conservative people’s understanding of politics. I think a lot of liberals have very well-informed political ideas and realistic models of political organization, but they don’t have as much of a grasp on economics, particularly the “hard science economics” of mathematical equations. Conversely, I think the conservatives are blind to the realities of politics, but they seem (in general) to have a more solid understanding of rigorous economic models. I think a lot of this is just an accident of ideology, and it could speak more about my own ideology than about America or the world at large, but it is an interesting phenomena nonetheless.

Does anyone know of any good economics forums that are inhabited by grad students and Ph.D’s? I like most of Marginal Revolution’s commenters, but its not exactly a forum or community.

Categories: Culture, Economics, Technology

Health Care: It’s about delivering efficient outcomes

Megan McArdle is “freaking out a little bit”. She is really worried about the implications of the fact that Pharma isn’t spending as much money on R&D as it did the year before.

Here is the meat and potatoes of her argument:

While some drugs are simply an added expense (think chemotherapy prolonging the lives of people who would otherwise have died sooner), many of the real blockbusters substitute for labor-intensive treatment.  Statins instead of cardiac catheterizations or coronary bypasses.  Avandia instead of amputations.  Hydrochlorothiazide instead of nursing home care for your massive stroke.

Her analysis is logically correct, but I think she is missing the bigger picture. Pharmaceuticals are a tool to get a job done, as are “labor-intensive treatments”, and also preventive medicine, and holistic medicine… the point I am trying to make is that there are a number of substitutes for current medical treatments that do not involve pharmacology, unfortunately none of these other substitutes are as profitable as drugs (people like drugs because they don’t require much personal effort to be effective, as opposed to most preventive medicine, and usually when people are at the point where they need Lipitor, the spectre of death is hanging over their heads to remind them that they better take their Lipitor… he wasn’t there before to remind them to take their fish oil or order a salad instead of french fries). Each tool has a certain level of cost-to-benefit efficiency when it comes to delivering healthcare outcomes, and after decades of pharmaceuticals being the best “bang for your buck”, we have long since been at a point where our marginal American healthcare dollars are better spent on other things.

The fact that returns to pharmaceutical R&D have been falling isn’t surprising to me. Pharmacology has been one of the “low hanging fruits” described by Tyler Cowen in his “Great Stagnation” hypothesis, and within this context it would make sense that we might have reached a technological bottleneck that is preventing us from creating a blockbuster drug that will do for cancer or Alzheimer’s what statins did for arteriosclerosis. From an economic standpoint, generally all returns are diminishing over time. As competition increases and technological process forces changes to the ideal business model, firms are simply unable to do the same thing for decades upon decades and expect it to remain at the same level of profitability.

Where I think McArdle completely misses the point is in her assertions that reduced pharmaceutical R&D spending may lead to a situation where “health care expenses might actually rise faster than we expect”. Assuming she is not making the error of confusing costs with outcomes, and that she is referring to constant outcomes

Health care is not so much a consumable good as it is an outcome… not an end in and of itself, but instead a means towards longevity and quality of life. Today’s standard of whatever would constitute “world class healthcare” will assuredly be less expensive in the future than it will today. Whatever new discoveries or technologies that will improve healthcare outcomes above today’s benchmark will assuredly cost more, and that is because people will literally be paying for extra years to be added on to their lives or for those last years to be more peaceful and comfortable. It is these newer longevity and quality of life technologies that are the primary cost drivers (of course, that is to say nothing of the price distortions caused by government interference in the marketplace and cartelization/misregulation within the field of medical service providers… or of the irrational components of society’s demand, which are exacerbated by the Phrma complex and its army of marketers and lobbyists).

This distinction between costs and outcomes is very important to make, because it is a misunderstanding of outcomes that has driven medical costs as high as they are. Life expectancy is rising everyday, as is quality of life for the elderly, so you compare tomorrow’s costs with today’s costs because the outcomes are going to be different. Doctors (or at least the good ones) tell us to take preventive measures, such as exercising and eating right, because they are by far the most cost-efficient ways to deliver optimal medical outcomes (an example of an outcome would be: still being able to enjoy X quality of life level at the age of Y). Someone who doesn’t want to exercise or watch their diet can still live to be just as old as someone who does take these preventive measures, but they will most likely be taking thousands of dollars worth of drugs, and have had who-knows-how-many procedures, and even then, it is doubtful that their quality of life would objectively be at the same level as Mr. or Mrs. Preventive Medicine.

McArdle attempts to sequester the most common liberal sentiments into a neat opening paragraph:

Worried about me-too drugs?  The medicalization of human variability in order to medicate them into compliance and/or sell them quack cures of dubious value?  Ever-rising prices for brand name drugs pushing seniors into penury?

Well, you can breathe a (slight) sigh of relief.  For the first time ever last year, the global drug industry cut its R&D spending.  The trend is expected to continue, at least in the near term.

If you’ll excuse me, the rest of us will be over here in the corner, freaking out a little bit.

I actually am worried about all those things, except for the last one: seniors aren’t being pushed into penuary… they are just spending more money to squeeze every last bit they can from life. Today they have the option of taking expensive drugs and doing expensive treatments and procedures that weren’t even around 10 years ago. Having that option is a benefit, not a cost.

McArdle’s worry is unfounded unless you own pharmaceutical stocks or are skeptical of our society’s ability to recognize the efficacy of the many alternatives to pharmacology. I will give her the benefit of the doubt and assume McArdle is more firmly planted into the latter camp, although I betcha a 90-day supply of generic diazepam that she also relates with the former. I also suppose that we all, as taxpayers, have stake in this game since the government is the biggest buyer of healthcare, but this should be more reason for us to want to explore the more progressive modalities of medical treatment as individuals. My biggest fear is that someone will draw the conclusion that we should be subsidizing pharmaceutical R&D (maybe we do already? I wish we wouldn’t).

We need a way to measure the efficiency of every marginal dollar spent on health care, measured in terms of outcome. People have a complete disconnect from this concept; part of this is because of capitalism, and part of this is because of human nature. When it comes to life and death situations, we hardly ever do an actual cost-benefit analysis to see if it is worth it to give Grandma another round of chemotherapy so that she can see her next birthday… maybe the money would have been better spent sending Grandma on a trip to the place she always wanted to go, but was never able to: increasing the quality life side of the outcome equation rather than the life expectancy side. Maybe we need to reform our capitalist culture so that we don’t put such a high value on excess or quantification. Maybe it is a good thing that the drug companies aren’t spending as much money making new drugs for us to take, it might force us as a society to move away from pharmacology and towards other modalities of medical care that are more cost-efficient and, perhaps at our current position on the tech curve, more efficient at delivering the outcomes we really want.

Transcendent Man: Ray Kurzweil

I watched the documentary Transcendent Man tonight and it is a very interesting and educational film. I highly recommend it to anyone who has never heard of Ray Kurzweil or is unfamiliar with Moore’s Law. If you’ve already read Kurzweil’s book or seen him talk before, you will know what you are getting yourself into with this movie and might actually find it kind of boring (like I did) (but its still good).

Kurzweil is an inventor and engineer who holds a lot of patents on optical scanning technology (specifically OCR) and several musical instruments. He is pretty famous: in the film it seems like everyone from Colin Powell to Bill Gates is giving him props. Over the course of the last several decades, he has made a name for himself by making bold predictions about technology, most of which have kind of half-way or sorta all-the-way come true (sometimes not always exactly when Kurzweil predicts they will), although there is a lot of debate in the scientific community about the accuracy of his predictions. His Big Idea is the “Singularity”: a point in time where technological change will happen at such a fast rate that we will have to become cybernetic organism just to understand and comprehend it. Because of Moore’s Law, computer will be as small as blood cells by the year 2040 and we will be able to bioengineer ourselves into cyborgs that will live forever and be able to download information into our brains ala The Matrix. Most of the skeptics don’t so much disagree with the premise of his predictions as they do with when they will come true, and this is where things get interesting.

Kurzweil has been accused, and these accusations are somewhat supported by the seemingly candid view we get of him in Transcendent Man, of having a lot of fear-of-death driven hubris. The film brushes past the facts of Ray’s father’s illness and somewhat early death, Ray’s Type II diabetes, and his less than subtle obsession with immortality, to focus on the marvel of his predictions. In the film, he seems obsessed with the idea of his own genetic fragility, and also his ability to perhaps single handed invent a way to cheat death. Kurzweil definitely has a large emotional/spiritual/existential investment in his predictions coming to light.

Another criticism of Kurzweil’s extrapolations is that Moore’s Law has a limit (something freely admitted to by Gordon Moore himself). Computers can only become so small before they will have to actually be smaller than atoms (these subatomic computers are theoretically possible, and designing these types of computers is the objective of quantum computing). Also at a certain point, the speed of light and the gravitational constant come into play, although I am not versed enough in physics to explain the ramifications of these limits. Suffice it to say, the unlimited exponential growth that Kurzweil bases his theory from is dubious, although his predictions of cell sized computers may come to fruition before these limits are met.

Artificial intelligence also plays into Kurzweil’s view of the future world. He predicts that AI’s smarter than every single human brain on the planet combined will come into existence within the next 50 years. I personally find this hard to believe because we haven’t been able to build a machine that can pass the Turing Test yet. It is interesting to note the diverging opinions amongst some of the “experts” in this field. The kind of AI’s that some of Kurzweil’s peers describe in the film sound more like Skynet than the benevolent personalities imagined by Kurzweil himself. In any case, I am far from an expert on AI and the film doesn’t really try to explain the specifics of it, which is too bad because it is a fascinating and ill-understood subject.

Regardless of the accuracy of his predictions or the possible hubris behind his optimism, Ray Kurzweil is undeniably a genius and an inspiration. I personally hope that the predictions he makes come to be a reality within his lifetime so that he can see The Singularity happen and so I can live forever as a cyborg.

Looking Beyond a Society Based on Consumption or Why I Am Not A Randian or Objectivist

This post is inspired by, amongst many other things, this particular “piece of writing” that I saw on Google News Spotlight. It’s not very good but I am linking to anyway in hope of maybe getting some cross traffic or baiting some Randians to come argue with me.

I haven’t read Atlas Shrugged, so please don’t mistake this as some type of review or critique.

Imagine a world where, instead of the capital owning class going on strike, the lower and middle classes went on strike. They stopped buying durable goods, stopped eating out, stopped going on vacations, stopped investing in their 401Ks. What would happen to the economy and industry then? Granted, the working classes are generally unable to go on strike for prolonged periods. They are called the working class because they have to work. They don’t have nest eggs and investments from which they can draw an income. So they work. They aspire, they consume, and they keep the economy moving along because they have to: they have to feed and clothe and house themselves and their families.

But they don’t have to buy new TV’s and automobiles or overleveraged homes. These are cultural values, specifically consumer culture values. Partially they are the legacy of the “American Dream” that is itself rooted in the scientific revolutions of the Enlightenment and subsequently mankind’s gradual ascent from a Hobbesian existence towards the current level of comfort and physical security afforded to us today. Human beings are an aspirational animal. We are hardwired to accumulate material wealth because material wealth brings security. From an evolutionary perspective, this makes perfect sense. The only problem is that sometime thousands of years ago, mankind started to cultivate the land and form societies. These societies began to offer to human beings a way to escape the Darwinian struggle for survival, to a certain degree. Over time, it has brought us to a point today where natural selection is still in effect, although social processes have created an evolutionary environment in which it is not always the most adapted that survive and flourish. We have created a world of equal genetic opportunity, which is almost assuredly a great thing, but we still have these evolutionary impulses to conquer and acquire, to hoard what is scarce, and to have anxiety over our relative social position.

All of these impulses are putting us on a collision course towards collapse. I am not an expert on environmental science or population economics, but I believe it is fair to say that the scientific community, by and large, has seen the writing on the wall. The level of economic growth, as it is defined contemporarily by GDP growth, is unsustainable. The stock of natural resources on our planet is being diminished and the world’s population is continuing to grow, both at ever increasing rates. From the time of the Industrial Revolution to the end of the Second World War, the world’s population has grown from 1 billion to 3 billion people. Only a fraction of those people were lifted out of what we would consider poverty and into the ranks of the working consumer class. Today, the world’s population is near 7 billion and more than half of those people are currently playing “catch up” with the Western world in terms of industrialization and standards of living. Even though today’s industrial standards are more technologically sophisticated and efficient than what was used during the 19th and 20th centuries, the cost to the earth of giving 3 billion more people plasma screen displays and three bedroom houses will be tremendous.

The consumerist cultural values that are intrinsic to the operation of the current global capitalist system are unsustainable, and from an existential viewpoint, completely unnecessary in today’s world of abundant food and relative interregional security. Many recent studies have been done that conclude people do not gain any marginal happiness with income levels over a certain amount. I am not sure what that amount is, but the mere fact that it exists should tell us something about the end result of an aspirational consumerist society: it won’t end until the earth is dead or we change our values.

The middle classes can stop wanting to become the upper classes, and the lower classes can be assured of their own rights to be enfranchised as global citizens who are able to receive benefits from the technological and scientific progress that has been made over the last several centuries, we just have to want it and demand it, first as individuals, then as a society. We have to change our values.

Back to Atlas Shrugged: Atlas would be screwed without society at large. If the upper class really are the innovators, idea people, and heroes of society (which is a claim I am dubious of, but for the sake of argument I will let it stand), they still need a stock of workers to bring those ideas to life, and a marketplace full of consumers who are willing to purchase these ideas. Philosophically, the nobility of the capital owning classes lasts only as long as you give credence to consumption as an end in and of itself.

Now BitCoins are being stolen

http://arstechnica.com/tech-policy/news/2011/06/bitcoin-the-decentralized-virtual-currencyrisky-currency-500000-bitcoin-heist-raises-questions.ars

Is this a problem intrinsic to computer technology? Someone can design the most sophisticated or elegant system, but all it takes is one hacker to bring it crashing down. And with a decentralized P2P network like bitcoin, you have potentially millions of people trying to game the system, and absolutely no one who is getting paid to keep watch. Look at all the problem’s that Sony is having with its online networks right now, and they have a dedicated staff of professionals and ex-hackers on watch to keep their system secure.

Institutions are never formed within a vacuum, and the Darwinian processes by which they survive necessitates a security apparatus if any degree of longevity and functionality is to be achieved.

Here is a simple and easy to understand story about innovation in America

Prof. Tyler Cowen is my favorite blogger and favorite contemporary economist.

http://marginalrevolution.com/

I get many of my best ideas from him. More recently, he wrote and published an e-book called The Great Stagnation. It is an easy and informative read, cannot recommend it highly enough. Rather than try to summarize what Tyler’s ideas are, I will let the man himself do the talking.