A brief roadmap toward a better economy

The general consensus in economic circles is that as the economy becomes more technologically sophisticated, the productivity of each worker will increase. Therefore, the aggregate level of demand must also increase if it is to absorb these increases in production without decreases in employment. This is understood, and the erstwhile politically expedient approach is to manipulate currency and allow the free promotion of corporatist advertisements and consumer ideologies in an effort to stimulate demand further.

However, stimulating the tastes of the individual may not be possible or desirable. Evidence suggests that individual consumption is not truly unlimited - we reach a bliss point beyond which our total consumption does not increase our happiness and beyond which we will not consume unless in a mental state of derangement. Furthermore, theoretical limits begin to come into play: the budget of actual time to consume is limited - production of increasingly luxury goods and trivial services also cannot meaningfully absorb the excess production; the marginal value of public goods and shared services begins to skyrocket after a certain point; wealth concentrations may run ahead of wealth creation, preventing demand from being able to keep up, thereby causing a failure of self-correction due to market withdrawal of firms rather than selling at a loss; and the spurious nature of fashion undermines the ability of producers to consistently serve at a level of adequate efficiency. The desirability of even pursuing such a strategy is really rather questionable: do we want to exhaust the earth's resources, work our people to the bone, and critically pollute ecosystems simply to avoid a paradigm shift? Are we setting the economy up for cruel boom-bust cycles, and are we critically undermining the opportunities available for young people to meaningfully interact with their society? If so, we should admit that we are forced to the paradigm shift option, that we should move away from a free-market dominated model and start to see markets as nothing more than essential efficiency seeking and accountability preserving components of a modern system of governance (in truth, this is what they always were, and we have simply been participating in an economic cult of sorts).

I begin with the economy of modern woes: excessive consumerism and persistent high unemployment; anomie and a public sphere in which the average citizen is either not at all engaged or marginalized. Assume that for the sake of environmental preservation that we desire to limit the rate of resource extraction with a goal of eventually living in a more-or-less sustainable fashion. Then it follows that there are only two options at the policy level to address this disparity:

1. Decrease the amount of work done by each worker
2. Sustain the employment levels through public works programs

Obviously the latter of these options is the more politically palatable. Quixotically, this is the option that is the most expensive and should therefore in theory be the most difficult to implement politically. However, the idea that Americans should share work is so foreign to their consciousness and so counter factual to their perceived universe, model of ethics, and workaholic habits that it seems that there is no hope of ever actually reducing our level of production per worker in a controlled way - the only politically palatable option seems to be to allow the economic busts to occur.

Fortunately, we do not have to launch into the first option until the second has become well enshrined in our consciousness. Given the horrific pattern of American urban and suburban development, institutional erosion, and neglect of scientific programs over the past 64 years, there are more than enough Government jobs waiting to be funded:

1. Jobs in civil engineering, urban studies and design, sustainable practices research, and infrastructure planning to help turn our cities and suburban areas into livable spaces in which individuals no longer require cars to do basic tasks like buy groceries and get to work. Everyone agrees that we cannot achieve sustainability without actually reorganizing the structure of our cities. This is such a mammoth undertaking that planning for it must begin now, and in fact new channels of action should be created because the processes for approval and change are just too slow to accommodate real progress.
2. Jobs in our neglected institutions, particularly the judicial and legislative branches of government, the revenue service (because there are so many tax cheats that each new revenue employee actually earns money for the state), government policy advisors and researchers, Human Services, education, and so many other little places where we are letting our society fall apart. These services increase the quality of life of the citizens and also reduce the unemployment level, making them win-win political propositions. The only way they lose is when the lies of business people are believed by the general public. The business people should be confronted when their credibility is weakest - when we are in economic crisis.
3. Jobs in the academic world and the arts, where we should have rotating positions for every Ph.D to spend time without curricula or research requirements, simply to allow them time to think and develop philosophy or reflect on current events. Everyone who wishes to obtain a Ph.D should have the chance to attend graduate school and write a thesis - and these should be judged by blind panels of visiting scholars on their merits, transforming them into something other than the political products that they so often are today. Higher education should not limit itself to being a servant of politics and business, it should be a vibrant and politically influential institution, and we should stop pretending that some of us are "not smart enough to have good ideas". Musicians and artists should receive support from the state, and programs like Concerts in the Park should become national standards.
   

As these jobs gradually expand to absorb the excess demand, we will have a period that is remarkably similar to the economic boom of the 90's. At the end of this period, projects of public works and development will complete. We will then be living in a very functional society with sustainable, livable communities and a much higher standard of living for the masses than they experience today. Even the wealthiest will have a higher standard of living because there will be many more opportunities to become popular in their community and participate in events, philanthropy and a great many things that simply cannot be provided by the free market alone.

This is the point when we must execute the most radical paradigm shift. We must begin to curtail the large bureaucracy of urban development and design (job group 1) and bring it to a maintenance level regime. This will help to ensure, among other things, that useless and wasteful projects do not occur. As we dismantle the large bureaucracy, we must absorb these employees into (2), (3), and the private sector. This will necessitate a modest decrease in the work week and possibly a lowering of the retirement age so that companies will hire these workers.

The economic development pattern, as evidenced by history and surely what we shall also see in the future, is one where technology and fashion work hand in hand to supplant existing regimes. The technological aspects of changes are of increasing complexity and therefore require greater and greater commitments by government to plan these changes. Our current economy is mired in its state because of the unwillingness of Democracies the world over to engage in the coordinated planning effort within their own legislative bodies, ie. they cannot work together.

We should either elect leaders who have a vision of a sustainable future, are not petty or prone to infighting, and who are not beholden to corrupt business interests who oppose change, or resign ourselves to the strife, environmental destruction, and the needless human suffering that is the mark of all ideological backwardness. I fear the thought of bequeathing to my grandchildren a world where many beautiful plants and animals are extinct, where we kill indiscriminately, and where we all work ourselves to the bone only to receive the pittance that will pay our debts and buy meaningless trinkets at Christmas time.

My vision of what is possible is not Utopian - I do not declare it the best or perfect. But the escape from ideology that this vision requires makes it less susceptible to catastrophic failures or the rise of totalitarianism when compared to our current system and where its probable trajectory would take us. It is, really, common sense: when there is unemployment, create jobs doing what needs to be done. When there is nothing to be done, do not work. These are subtle truths of economics that none can deny. They are self-evident, and we should act sensibly, starting today.

A brief critique of property rights

Each and every one of us was born into this world where every bit of property, every grain of sand, every sheaf of wheat, is already claimed as the property of another person. We are literally dependent on their good will to survive. Following the logic of rights to its conclusion means that these "original owners" are collectively entitled to determine who lives and who dies among all who come after them.

Comments on the proposed PPS High School System Redesign

This is my response to the Thinkoutloud program on the proposed High School System Redesign. I don't believe the case for abolishing the transfer system has been made adequately.

You can read about it here:
http://www.pps.k12.or.us/depts/communications/hs_system/
http://www.opb.org/thinkoutloud/shows/school-equity/

First - As a caller has already pointed out, it is impossible for every school to offer every opportunity. Attempting to provide "every opportunity at every school" will lead to situations where multiple schools each have a few students interested in a particular program but that program exists at none of them, where under the current system that could be provided at one school and those students could attend there.

Thinking a bit deeper, one sees the self-motivation behind the Education System's desire to end transfers and provide every opportunity at every school. Because we lose the comparative advantage of varied curriculae from school to school, the entire system loses efficiency. The resulting shortages will help to make a case for diverting more funding to Education.

Secondly - It is not difficult to make school funding work under a transfer system - even with the current system of funding. Even as this show's guest speaker talks about how the current system doesn't work, the truth is that no realistic attempt was ever made to make the transfer system work.

All that needs to be done is for more of each school's (proportional) funding to be fixed based on the facility size, meaning less money moves from one school to another when a student transfers.

This will have two benefits: First, this increases the per student funding at a school that has students moving away from it, thereby allowing the quality of programs to increase at that school. Similarly, the quality of programs at schools that become packed with students will decrease. An equilibrium is created from this shifting, and we will have achieved a natural equalization mechanism that is not subject to political manipulation by the ambitions of State Agencies. Secondly, the transfer between schools provides important, direct evidence of the relative quality of one or another school. This will force the very good schools to admit that they are overfunded. If we want equalization in education it means the nicest schools will have to get crappier, or more money will have to be injected into the system. There is no other alternative. How about decreasing funding for Lincoln and Lake Oswego in order to increase funding for Jefferson and Grant? Already I can hear the rich (oh, I'm sorry, "middle class") kids moaning. Only a quasi-market approach like what I have suggested here will overcome the rhetorical trump card of liberal urban wealth.

Finally, just to comment on some random things:

* The idea that bussing kids around the city is wasteful to the environment is really an unfair argument. When we are talking about the inner city schools, they aren't really that far away from each other in the first place, high school students can take the public busses, and most kids are within biking distance of their school. Plus, schools have a lot of incredibly environmentally wasteful practices, such as the emphasis on paper handouts instead of textbooks, the use of pre-made foods for the lunch program, the locating of new schools on the edges of town, etc. Picking one of them out like this is dubious at best.

* In order to implement this no-transfer system, a political battle will take place over where permanent funding is allocated. This battle will be political, and I have no doubt that the worst schools will come out of it underfunded. These schools don't have parents who are rich lawyers giving $1000 political contributions.

* What the system really needs is a move toward much more localized schools. The education system needs to become more adaptable to situations and more vigilant, with the resources to snap up choice real estate and have compromise building designs so that space can be utilized even when it is not ideal. This is a ways off, but most people I have spoken to agree we should move away from the large high-school model and toward smaller, more local schools that are anchors in the community. But moving toward a uniform curriculum will mean that schools can't be shrunk down, effectively blocking Oregon from moving in that direction.

* We should not sacrifice a few white students as the crucible to ethnic diversity in schools. From everything I have read, the black student body at schools that have a very small population of white students subject these students to the most horriffic racism. These white students are subjected to violence or the threat of violence on a daily basis, and they face constant harassment. White girls are even accused of being racist when theydecline the many dates and propositions they recieve from the black males at those schools.

In conclusion, I feel that we should give the transfer system a fair chance by making realistic attempts to get it to work. This will mean some schools have funding reduced, and that is simply how it needs to be. Sometimes in politics, it is bad to give the people what they want, but here there seems to be very little reason to proceed with this plan to end school transfers. Thank you for reading.

Nerd Rage

Growing up, I never thought of myself as a nerd. This is mostly because I am tall, didn't have severe acne, and never was into any of those godawful sci-fi television shows. But I did like reading philosophy, Kurt Vonnegut, and leftist literature. I also got into gaming. I played Counterstrike, Starcraft, DOTA, World of Warcraft, etc. In college, I got into Anime and Manga, which I still read for enjoyment today. Now, I do a lot of board gaming. Perhaps the nerd meter is rising. Perhaps I was always a nerd because I taught myself how to do computer programming in 7th grade?

I guess that even though I never called myself a nerd, other people might have called me a nerd. Maybe I'm a nerd just because I don't watch or play any sports. Somewhere during my time growing up, I think a new definition of nerd kicked in and now everyone is a nerd, nerds are cool, and people with genuine interests in esoteric things are part of some nameless class of uncool people.

Well, I've got news for you: those people are nerds. A nerd is not a fashionably dressed, tall person who has good interpersonal skills and just happens to wear glasses. That's a hipster. The class president, outside of blockbuster hollywood moves, is not a nerd no matter how bookish she looks.

Maybe at its very core, nerdiness is a fascination with the real and imaginary workings of objects outside of the bounds of the social - the social world being our duties and obligations to each other and society, and the resulting system we use to judge each other on so many levels.

Ok, so that's a nerd, and you know a nerd because he tells you all about something that you perceive as being completely irrelevant. Before this whole new definition came around, nerds didn't call each other nerds, and popular kids called plenty of people who weren't nerds.. nerds! This is the same thing that happens when people call me a fag when they see me riding my bike. We are not about to change the definition of what a "fag" is so that I can be a proud faggot riding my bike around to save the Earth (and for your information I support gay rights without being gay myself).

So how did this happen to the nerds? It was a coup d' etat by the popular kids. A change in the winds of fashion blew them into the world of Firefly, Harry Potter, Twilight, and other shamefully marketed shit. But unfortunately, when the popular kids arrived in the world of the nerds, they usurped them. They didn't try to learn from them - instead they defined them out of existence.That's why I won't call myself a nerd. The word doesn't mean anything anymore.

A one paragraph summary of Ecology

The ecological splendor of the natural world came about through the repetition of a single theme: A resource that increases in abundance increases the fecundity of organisms that survive well within the environment under such abundance. These organisms then reduce the level of resource abundance through their own abundance, but create (or become) resources in the process. The degree to which this repetitive system stabilizes is directly proportional to the sensitivity of response and the number and variety of such systematic interactions, both of which increase with the biodiversity of the ecosystem. Generally speaking, only loop-shaped (and multi-looped) relationships trend toward a stable equilibrium, because A) The absence of closed loops (eg the arctic hare and fox) leaves the last species (in this case the fox) with only resource exhaustion as a check, seen as a repeating wave running from the beginning to the end of the chain (or sometimes from the end to the beginning); and B) Closed loops repeatedly transmit population imbalances back to the original resource species, creating a type of “surplus parity” in which standing reserves of resources come to exist within ecosystems, allowing incidental increases in constituent population levels to be smoothed out (initial consumption boost = residual increase in resource surplus).

Economic Analysis of Drug Research and the 12 year protection provision

In the course of crafting economic analysis of research/innovation markets, economists often make serious errors of the following kind: failure to investigate incentives in detail; failure to set a valid bar of comparison; mischaracterization of the market itself; and failure to account for the dynamic institutional relationships between researchers and the firms that become their direct clients. Such is the case with the most recent inclusion of a 12 year data exclusivity rule for new biotechnology drugs in the new House Healthcare Package, HR 3200.

Background

My starting point for research into this topic is Proper Duration of Data Exclusivity for Generic Biologics by Economist Alex M. Brill of the American Enterprise Institute.

The most important observations relating to HR 3200 are the following:

1. The drugs in question are cutting edge biologics, an important but quite small segment of the pharma market. They are estimated, by 2012, to have a total global market of $6 billion. The 2008 revenue of the pharmaceutical industry as a whole is more than $600 billion, with a high concentration of revenues and profits in a few drugs: Lipitor (Cholesterol - $14.3 billion), Advair/Seretide (Asthma - $6.1 billion), and Plavix/Iscover (Thrombotic events - $6 billion). Source: Wikpedia

2. As a corrolary to (1), if a political tradeoff that leads to a diminished economic result for the small biologics segment also secures an improved result for the larger non-biologic segment, the sheer difference in scale makes a net benefit very likely. Furthermore, HR 3200 does contain such provisions: A ban on schemes where generic manufactureres recieve payoffs from brand manufacturers in exchange for delaying generic production (backed by the FTC) , and drug price controls (pg 787-797 ; tenative about what this will look like and what its real effect will be). So, political concerns may render the economic analysis moot.

3. Data exclusivity rules differ from patent protections in the following way: Both can effectively grant monopoly status to a drug manufacturer for a period of many years, but patent protection is granted at the time of filing, before the trial period of the drug, and only patent protection can be challenged in courts. The current patent protection lasts 20 years, of which only a portion can typically be used for monopoly production. In comparison, the entire period of data exclusivity is given to monopoly production, without similar uncertainties of legal challenge (Brill, 7). For this reason, any calculation of profitability under a patent scheme should hold a fortiori for data exclusivity.

4. Brill's paper proceeds with a break-even analysis, reaching a conclusion that the break-even point is 9 years for a 7 year data exclusivity window. His paper is largely a response to a paper written earlier in 2008 by Grabowski that did similar analysis, but concluded that the break-even point is between 12.9 and 16.2 years, given a different set of exclusivity assumptions.

My response:

How did we get locked into a debate on the level of innovation? Are we tacitly assuming that the essential question is how to maximize dollar profits associated with innovation?

Specifically, I'm posing this question because this attitude places all of the incentive to innovate into the dollar profit category, which is pure fantasy. Aside from dollar profits, innovation carries a mystique that implies prestige, free press coverage, political clout, and a place in the history books. Even were there no rules or laws in place granting temporary monopoly, there would still be a strong motivation for companies to innovate. Though it is convenient to express the motivations of a company as dollar profits, it is actually a misapplication of theory to associate dollar profits with the firm motivational concept of profit. Firms are motivated to maximize a profit function that takes a set of objectives as input and associates each one with an approximate dollar value. Not all of them need be sources of future literal dollar profit - doing so takes significant cultural factors out of the economic function.

Much innovation is done by nonprofit or educational institutions, hereafter referred to as non-corporate research. In their case, prestige is the single significant motivating factor, and monopoly production power has no bearing on this prestige.

If we further assume that high healthcare costs have no drag effect on the economy, and that innovation is our goal, we will still reach the same policy conclusion as Brill or Grabowski. Whenever the dollar profit incentive declines, the total quantity of research will necessarily decline - because lower corporate profits mean a downward income distribution and lower tax receipts, which in turn mean less funding for non-corporate research. Therefore, we should choose a degree of monopolization that helps guarantee against potential losses in order to encourage innovation.

However, we can take a different approach and say that some potential innovation should be sacrificed for lower drug costs. In this case, considering that drug costs are about 10% of the healthcare system's costs, and given that 69% of all perscriptions are generic, and that generic sales are 20% of all sales ($58.5 of $286.5 billion), we can compute the generic savings. First, if none of these drugs were generic, the total cost of medications would be $735.5 billion (257% cost). If all brand name drugs were replaced by generics today, the total cost of all medications would be 84.8 billion (30% cost). Roughly speaking, were we to reduce the monopoly protections by 50% in America, we would save 35%.

Of course, this is the exact type of trade that is considered immoral in the American ethic. It is a trade away of innovation, therefore a trade away of potential life saving future treatments. Suddenly the policy maker is choosing between dollars and human lives. But there is a lingering quality of life question - how many more people could afford medications, how many more people could avoid financial hardship under such a regime?

If we posit that the economy in general will do better when all healthcare costs are lower, we can still include a variety of attitudes toward protective monopoly. Though the direct, analytical impact of reducing noncompete periods is negative on innovation, a comprehensive policy which significantly reduces healthcare costs could still feature this and very easily be positive to innovation, provided it helps build a sufficiently stronger economy. Higher tax revenues could then be put toward publicly funded research. In effect, our attitude toward healthcare as a whole shifts the balance of research between public and private - a good national healthcare system would put research squarely into the universities rather than private companies, a result that is both good and bad.

I will not join the chorus of voices who denounce the waste and trickery associated with corporate research. The degree to which corporations get away with bad stuff is not a result of any manichean scheme where the corporations themselves are bad. Our society has a class of people who are raised with a goal of making profit - these are the business people, who graduate from business schools and do not have the time nor the obligation to study social justice. It is a failure of regulation when companies get away with bad things. Private research does offer many nice benefits to our society, but we can't look the other way or give them excessive powers of privacy.

Where a non-corporate researcher can get away with essentially doing nothing for decades, the private researcher is more likely to be brought to account by the very profit-oriented business people that are absent from the academic sphere. But while the corporate researcher can develop a drug that is substantially identical to his previous drug and be paid handsomely for it, the non-corporate researcher will hear the ridicule of his critical thinking and prestige-oriented colleagues. This dynamic is the central question in the character of drug innovation in America. At least in this sector of healthcare, and I suspect in others as well, it reveals the case that we have a failure primarily of oversight, both in academic and corporate research. The nature of common abuses is different in both systems, but these abuses are there.

For publicly funded research, there should be funding for pure science and also funding for development of medicine, but it is wrong to systematically dedicate money earmarked for medicine to research that only furthers pure science. Admittedly, the distinction between science for science's sake and for the public good is nuanced and at times difficult. When agencies review and approve grants, agency policy can have severe impacts on the nature of research and the careers of individual researchers. Congress and the relevant agency branches should work to ensure that it is the public good that is served before science. As backwards and anti-scientific as that sounds, it is a reflection of the importance of social welfare as a separate value from the furtherment of science. For the most part, funding will serve many laboratories that contribute to both. When making the tough calls, though, the goal should be to provide money to laboratories that promise realistic benefits to the public before laboratories that only promise to explore possibilities. Separarate funding should be dedicated to the furthering of science! Defrrauding the public is not a prerequisite for stable funding of science!

For corporate research, the key is oversight. Corporations that engage in a variety of unscrupulous practices do so because they know they can get away with it. By a permutation of Gresham's law, this becomes the industry standard over time. It is better to nip these trends in the bud. Laws about information exclusivity need to be formulated so that they cannot be gamed by skilled businesses. All studies of effectiveness should be public, and companies should be required to market their most effective drugs. This is the only way to prevent companies from rolling out drugs, especially biologics, of progressive efficacy in a series rather than simply immediately marketing their most effective one. It is clear where the public good is in this case.

As far as drug costs are concerned, one should ask who the highest paid employee of your local supermarket is. You will find that it is the pharmacist. He is paid well because the drug markup is huge. It is often even larger for generics. As economies become more localized under new city design regimes, the oligopolies of nearby stores may have even more opportunity to pursue these markups. As we embrace changes to healthcare, we might become less interested in small drug price differences between nearby stores, giving license for further markups. For these reasons, it seems to me that regulation at this stage will be essential as well.

In conclusion

The future of American healthcare is probably not going to be much different from healthcare in America today. We will take corrective action only when the system itself is threatened (as it is right now) but we will maintain the same essential character for our healthcare system. The uniquely high costs and waste inherent in the system might be eliminated incrementially but definitely not all at once, even though it is possible to do it all at once with a leap of faith.

No matter how one chooses to restrict generics in the drug market, the effects of such a rule cannot be particularly significant to the general cost problem. I have outlined a variety of ways to address the problem without changing the length of exclusivity periods. Both public and private funding structures for research should be improved. General healthcare reform should consider costs because of their economic and quality of life impact. Other parts of the distribution and production structure should be analyzed, and cost control measures at the retail level should be considered. This alone may allow us to realize a 35% cost reduction, the same as if we took away all dollar incentive for private research.

And if you are curious, because no news agency published the bill number, here is the horse's mouth:

http://energycommerce.house.gov/
HR 3200

Too many Gates

So we have the Bill Gates, Microsoft Overlord:




And now we have the Robert Gates, Military Overlord:




Finally we have the Henry Louis Gates, Harvard Professor arrested for trying to break into his own house: