14 March 2011

Let's give one team a major advantage and then acted shocked when they run up the score.

I posted this earlier today:
EconLog | Arnold Kling | No Prayer, Sorry

I think that (non-classical) liberals and libertarians see the problem of “special interests” differently. Liberals view special interests as exogenous to the policy process. You have to overcome special interests to create good policy. Libertarians see special interests as endogenous. Policy is what creates them.
The end of that post is this:
Most important, liberals will always say that we need government involvement in food policy, energy policy, education policy, health policy, etc. When they observe that a particular policy serves only special interests, they may appear to side with libertarians by supporting a rollback of the offending program. However, while the libertarian will put forth the notions that public policy is often self-defeating and that it is impossible for policy to be immaculately removed from special interests, the liberal is never going to concede those points.
Now, keeping that in mind, do read this post at Boing Boing.  Be sure not to miss the comments.
Boing Boing | Rob Beschizza | $10 drug now $1500 after FDA grants monopoly

A progesterone hormone injection, used to prevent preterm labor, used to be $10 a shot. Now that the FDA has assigned an exclusive right to create the easily-made formula to one company, KV Pharmaceuticals, the price has risen to $1500. Almost all of it is pure profit, and KV Pharma did not develop the drug or pay for its trials: the taxpayer did, via the National Institute for Health. It is said to be the only drug proven to prevent pre-term birth, and an expert cited by ABC News suggests that the profession was snookered into supporting the assignment as a quality standardization measure.
To a first approximation, all of the comments are screaming about how terrible capitalism is. No concern is paid to this being a government program to circumvent competitive market forces. The idea that central planners can ensure quality control by eliminating competition was disproved by the end of the Stalinist era, at the latest. (Really, this was one of the half dozen or so pillar reasons central planning was supposed to be more efficient than the stochastic, iterative chaos of the market.) Yet here the FDA is trying that strategy again. And when it backfire, who's to blame? Surely not the people who used their coercive power to rig the system. No, no, no, it's the market and those nasty people engaged in for-profit medicine.  How dare they?!

I have no idea how KV Pharma got this deal.  Maybe luck, maybe graft, maybe some other rent-seeking.   I don't want to let them off the hook.  But if you put a meatloaf on the ground and the dog eats it, whose fault is that really? Sure, you yell at the dog, but what the hell were you thinking making it possible for the mutt to misbehave like that? The FDA freely and willingly gave them a monopoly, and KV Pharma took it.  How is the FDA not to blame for that?

And what the hell did the FDA expect was going to happen when they did this?  If the agency is that short-sited or unimaginative or ill-prepared or incompetent why am I possibly supposed to trust them making all of my medical risk-benefit assessments for me?

Edited to add (16 Mar '11)Alex Tabarrok has a different view about KV and why the FDA granted them a monopoly.  In brief, this is a result of a well-intentioned but poorly executed orphan drug act rather than a quality control measure, as I had read.  He also links to Derek Lowe's comments, which are good.  He says that he major value-add KV has brought to Markena through this program is the ability to put "FDA Approved!" on the label.  You tell me who pushes that as a valuable thing more, the pharmaceutical industry, or the FDA.


  1. I think Arnold Kling has it wrong, or half wrong, and the relationship between special interests and classical liberalism. For one thing I think it's sort of high-and-mighty to speak of "classical liberalism" at all and also claim that mantle for yourself to the exclusion of others that might claim the title. CL was never a settled thing. It's a thinly disguised argument-from-history. More importantly the problem with using CL in an argument in relation to an FDA/US govt case, is that we live in a Madisonian Democracy, which is as close to the original praxis of CL as one is likely to get, but if one wants to equate CL with MD, then one should just say that.

    Which leads me to why I think Kling gets it wrong. Special interests are not endogenous outputs of the Madisonian system; they're endogenous inputs, the necessary engine that makes MD function at all. I feel pretty confident as someone who claims the classical liberal mantle for myself in saying that that is both how I see this FDA case and why I still think that what happened here was wrong and could be seen as an exogenous shock.

    I don't think The People are wrong to demand that there be some quality control/guarantees placed on a hormone injection they will never be more than superficially knowledgeable of. Certainly "The Consumer" is a special interest arguing that "After I have taken a hormone treatment and my baby dies is too late acquire adequate restoration." So they want the government to handle that for them and provide them security pre-injection. They are not asking for a monopoly contract with KV.

    But the libertarian argument here is weak too. If they refuse to see special interests as endogenous inputs but only outputs of policy then, of course, they ask that The Consumer not voice his interest while The Manufacture continues to voice his. Even if The Manufacturer doesn't manipulate through the government (unlikely) it's in his best interests to lower quality and raise price of his own accord. So your $10 injection still goes up in price and loses the standard of quality it had before.

    I don't see any reason why the government, given the request of providing an FDA-approved stamp thought the best solution was granting a monopoly. I mean, I can see why they did it. But I can also see why The (Now Outraged) Consumer special interests wants to roll back the problematic part and not the system entirely.

  2. Actually I didn't see the update on this and had no idea about this ODA thing. That's one seriously screwed up piece of work. They get exclusivity on the drug and on the problem? That's ridiculous.

  3. Terminology wise, I don't feel like wading into a discussion about what "classical liberal" really means. I find it a clunky term, as I think most people who self-apply it do. I haven't found a good way of differentiating liberal-as-most-americans-interpret-it from the neo-liberalism of say, Sweden, from the liberal-as-it-meant-centuries-ago. I'd be happy if the terminology surrounding different meanings of "liberal" settled down in such a way that people like Kling (and myself for that matter) didn't get to use the "classical" descriptor, just as long as it settles down in some what people agree on.

    Are "special interests" endogenous inputs or endogenous outputs? I don't know; you raise a point I'll have to think more about. But I think the important thing is that they are endogenous. There is no getting rid of them. I think any scheme which relies on "removing the power of special interests from politics" is tilting at windmills.

    In this specific case I have no problem at all with the state having some quality control regulations. Trying to enforce them through monopoly is bound to fail when applied widely, but some measure of quality control enforcement is fine by me. I have no problem with setting "The Consumer" up as a special interest. I just want people to recognize that every group advocating for anything is "special" in one way or another -- there is no truly "general" interest.

    As to whether people should want to undo this system generally or this specific result, I think it matters how likely this outcome is from this system. It seems almost inevitable to me. I can't imagine this working any other way if you think the problem is a poorly designed system. If you think the problem is a functioning, well-intentioned system that got tricked by one dastardly corporation, then undo only think consequence of it. But then you also need to trust that no other corporation will come along and exploit the same conditions which still stand. What's odd to me is that that view is held by the same people who generally have the least amount of trust in corporations.

  4. PS Re: the ODA thing, yeah ... this whole program looks more and more screwed up to me. Good intentions and all, but executed by people who didn't or couldn't bother to think a step ahead.