The Wondering Mind

It’s great to hear of more and more thought going into the effectiveness and efficacy of modern medical treatments. I’m sure the ever-tightening medical budgets are having huge impact on this, as well as bodies such as N.I.C.E. in the British National Health. Whatever the reason, it’s a welcome development.

Of course, this development is not without detractors.

Despite the task force’s reservations, most medical societies endorse annual mammography, as does the American Cancer Society.

I can’t help the feeling that their opposition has more to do with their not-so uninterested stake in the matter. After all, it’s hard to beat the drum for your “cause” if you’re not allowed to have drums like screening.

You really hope advocacy organisations which deal with the general well-being would really be selfless in their work, but I guess it’s not realistic. Sigh..!

President Obama was in the news (very briefly) about a small comment he made on legalising marijuana. It was during the “cyber-townhall” meeting he held on a wide ranging set of issues.

Apparently, one of the more popular questions posed was regarding legalising marijuana. As President Obama characterised it, the question proposed that legalising the use of the drug, and thereby taxing its sale, might help create jobs and improve the economy. (You can see a video of it here.)

If that was a fair characterisation by the President, then it was a silly question and it deserved to be brushed off. You don’t need to be an economist to realise that the size of the current economic problem is such that, for legalised sales of marijuana to solve the economic problem, we would all have to consume vast quantities.

To put this in context, Diageo, one of the world’s largest drinks companies, has sales (not profits) of £10.6 billion for the year ended June 30, 2008. (The current exchange rate is approx. $1.40 for £1.) With banks such as Chase having received two and a half times that individually to bail them out, you can see that for marijuana sales to rescue the economy, it would have to become the most popular drug sold, by a factor of thousands.

All this is my way of saying that it was an incredibly silly way of asking about legalisation of marijuana. But I suspect the questioners thought they were being very clever and sly in asking their real question: Will President Obama support legalising marijuana for recreational use?

There are potentially powerful arguments to be made for legalisation from a law and order perspective. There is little evidence to support the notion that it is a “gateway drug” and, because it does not have the sorts of addictive properties as some of the “Class A” drugs such as cocaine or morphine (heroine), it is debatable whether marijuana causes additional criminality that is not associated soley with the fact that possession and use of it is a criminal act in and of itself.

There are, however, also good reasons for opposing legalisation. For example, marijuana can and does come in different grades of potency and it is questionable as to whether the more powerful variants would ever be allowed for recreational use. In that case, the recreational users are likely to keep on seeking out the more potent, and illegal, variant. Legalisation of the less powerful variants may then not alleviate the law and order issues, and may eaxcerbate them by creating potential loopholes for criminals.

I admit I’m not the most well-versed person on the topic, but there does not appear to be sufficiently convincing arguments for legalisation which overwhelm those opposed, at least for recreational use. I also suspect that that is not far off from what many people think. Which is why the “cyber-potheads” ask silly questions.

What’s more disappointing is the level of discourse coming from some people who apparently favour legalisation, at least for medical use. I’ve read two on Huffington Post, both of which are poorly argued and off the mark.

The first one was so off the mark I’m still not sure why the author was so worked up. First, the President’s point was addressing the question whether legalising pot would aid the economy. Neither this nor the second article address that point. As one of the commentors for the first article noted, this may have been deliberate on the President’s part to avoid having to tackle a tricky issue he’d rather not deal with. But the author didn’t even make this obvious observation.

In fact, in this author’s case, he was talking about a legally available drug containing an active ingredient derived from pot. So what is his beef? Other people can get the same drug he did, legally!

If his point was to argue that there are people who would benefit from having access to a more powerful variant of the drug he had, i.e. medicinal marijuana, then he never got around to making that argument. And he never makes any link between those posing the silly question to the President and those who need medicinal marijuana, which would have justified the comment that the President was laughing at “them” as a group.

The second article I mentioned seems to make exactly the same mistake.

While this author makes a more convincing, and coherent, argument for legalising medicinal use of marijuana, he is still missing the point. Which is, the President was not addressing that issue; he was saying legalising marijuana would not help the economy. (At this point, I suspect that was at least a mischaraterisation of the sorts of questions which came in on the issue, deliberately setting up an easy straw, and I’m amazed it seems to have worked so well.)

I think what both authors are missing, or deliberately avoiding, was the question of whether marijuana should be legalised for medicinal use only, or if it should also be permitted for recreational use as well. Because lets face it: whatever the merits or demerits of a serious argument about marijuana’s benefits, the majority of those who support legalising marijuana want to use it recreationally.

Of the many people I know, and have known, who favour legalisation of recreational use, most of whom are recreational users themselves, I have never met a single person who had anything to say about its medicinal properties.

That means that the supporters of medicinal marijuana are faced with a choice. They can support keeping the drug illegal for recreational use, in which case there is almost certainly not enough interest, let alone support, among the public in legalising the medicinal use. Or, they can support recreational use, in which case their cause is linked with a much weaker cause, and one which has powerful law-enforcement opponents.

If supporters of medical marijuana want real change, they have to start making difficult, and brave, choices, instead of venting misdirected anger and frustration like the two authors.

Apparently, The Cancer Project, a nonprofit cancer prevention organization, has produced a study listing the five worst items you can buy on the “dollar menu” at a fast food restaurant.

The items on the list are not that surprising. That these particular restaurants serve such unhealthy items is not, or should not be, all that surprising either, no matter how much the “media relations manager” at Jack in the Box tries to dance around the issue.

So all in all, nothing new here, although a nice reminder for people to think carefully about how they might substitute items in their daily menu to help meet tightened budgets. (We’ll ignore for the moment the inconvenient fact that the NY Times reading demographic groups probably avoid, as much as possible, most of the restaurants mentioned.)

What is not particularly helpful or informative is what was written in the last couple of paragraphs of the article.

But Alice H. Lichtenstein, director of the cardiovascular nutrition laboratory at Tufts University in Boston, questioned whether the declining economy would have much effect on people’s eating habits.

“It would be nice if they decided it was better for their budget to start preparing food at home more often,” she said.

This last statement completely ignores the fact that much of the modern eating habits are related to, if not a result of, the modern life-style. This relationship often cuts across a family’s wealth, with families both rich and poor often too busy to prepare fresh meals from scratch on a regular basis. This change in life-styles over the years has resulted in a significant change in the way we are supplied with food, such that it is now extremely time-consuming and difficult even for moderately busy people to find, purchase, and prepare fresh food.

Perhaps more pertinent, my personal experience is that it is often not necessarily cheaper to prepare food from scratch at home. This appears to be the experience of many people I know as well. The reason is that while it may be cheaper preparing some foods at home rather than dining out, this is not the only option open to the consumer. Another option is to purchase foods which have been pre-prepared at a supermarket. So the correct comparison Ms. Lichtenstein should be making in this case is preparing foods versus supermarket purchases.

And in many cases, preparing food at home is no cheaper, and can often be more expensive than, purchasing prepared food at the supermarket. This is partly because healthier ingredients can often cost more. It is also the result of the changes in the food supply due to changing life-styles I mentioned earlier.

(The food companies use industrial production methods, have economies of scale, and have large purchasing power to obtain volume discounts on the purchase price of the fresh ingredients. These factors can help make the total cost of food and its preparation much lower for them than for an average family, especially when one takes into account opportunity costs.)

This is a prime example of policy analysts making high-minded and nice sounding policy recommendations which are, in fact, completely divorced from everyday realities. Fact of the matter is that unless modern society and life-style becomes very different from what it is today, people will not spend more time preparing food at home on a regular basis. The other demands of life on families simply do not allow this option.

The realistic policy options are then clear. You can continue to call for people to spend more time preparing food. But then you have to realise that what you are advocating is a whole-sale change in the modern way of life. You cannot tell people to spend more time preparing food but have no idea how the people would, or could, achieve this goal.

The other, more realistic and easier, option is to try to make the prepared foods sold in supermarkets and restaurants more healthy. This will probably involve significant changes for the suppliers of these products, but this will probably be easier than changing society to make more time available for individual food preparation.

In the previous post, I talked about the problems in health care systems. Specifically, I was writing about the problems of people placing unreasonable demands on their health care systems. Through failure to consider the needs and demands of other users of the health care system, as well as considering how the system would be funded, the users of the system are essentially setting it up for failure.

There is another reason why health care systems around the world face such difficulties. Health care is, in the parlance of economics, an inelastic good. In plain English, it means that a change in the price of health care does not result in a change in demand for health care.

Which is rather obvious when you think about it. Let us return to the example of Mr. Hardy with kidney cancer, who needs the drug Sutent for treatment. It doesn’t matter if the treatment costs $54,000, $54, or $54 million: Mr. Hardy either needs the drug or he doesn’t. Making it cheaper will not make him want it more, and making it more expensive will not make him want it less. Making it more expensive merely limits his ability to obtain the treatment.

This is true of most medical treatments and drugs: you either need it or you don’t. That means that the normal mechanism of a market economy which allocates resources for the most efficient use and maximum utility (or benefit, if you will) do not work in this case. That mechanism is price.

If demand for a particular good does not change no matter what the price is (in other words, if the demand for the good is inelastic), then prices can go through the roof. And we see this in the health care system.

Take the case of Celgene, the maker of Revlimid, a drug for multiple myeloma, a bone-marrow cancer, that in a preliminary ruling on Oct. 28 the institute said was too costly.

Celgene’s first big seller was thalidomide, a decades-old medicine now used as a cancer treatment, which is so cheap to manufacture that a company in Brazil sells it for pennies a pill.

Celgene initially spent very little on research and priced each pill in 1998 at $6. As the drug’s popularity against cancer grew, the company raised the price 30-fold to about $180 per pill, or $66,000 per year. The price increases reflected the medicine’s value, company executives said.

In 2005, the company introduced Revlimid, a derivative of thalidomide that is supposed to be less toxic, but may be no more effective. Celgene priced it at about $260 per pill, or $94,000 per year.

Celgene is clearly pricing the drug at a level it believes the market will bear, and which maximises Celgene’s profits. It is not pricing the drug at a level where the total social utility is maximised. In other words, the price is not at a level where the total benefits of the sale of the drug, for both Celgene and the consumers, are at a maximum.

One thing which I haven’t mentioned yet is that this sort of price gouging is only possible for one reason, which the quote above hints at: Monopoly power.

Celgene is able to charge a price for its drugs at a level far higher than the cost of production because it has a patent, which allows it exclusive rights to manufacture the drug for a certain period of time before the patent expires. By granting companies a period of exclusivity on a new product, when they can reap out-sized profits from the sale of the product, governments hope to provide an incentive for such entities to invent and discover new and useful discoveries and inventions.

Mostly, this system of patents could be said to work as intended. For most products. But medicine and medical treatments are not most products, because they are are subject to inelastic demand. Let me illustrate.

When Apple came up with useful and clever ideas to make a better MP3 player, ideas covered by patents, it could charge more for its iPod than competing MP3 players which didn’t have the clever features. This was not only an incentive for Apple to get creative with the iPod, it provides a continuing incentive to be clever, since those patents will eventually expire and unless Apple can come up with other new ideas, other companies can eventually use those clever ideas and Apple will find it hard to charge a premium for its products.

Thing is, iPods and other MP3 players are discretionary items. By that, I mean that they are not necessary; you might want one, but you don’t need one. So if the price is too high and you cannot afford one, it’s not the end of the world (although it may feel like the end of the world for the kids who want one). You can even purchase a lesser model for less money if you really must have an MP3 player.

Sutent, and other drugs, are not like that. You have kidney cancer and you can’t afford Sutent, it probably does mean the end of the world for the patient. And a “lesser model”, or drug, is not a practical alternative.

With the normal price mechanism failing to regulate the market, health care demands one of two changes. One is to get rid of patents for drugs and medical treatments, or at least modify the patent system to allow greater price competition. But if we did that, we would need to replace the patent system with some other system of incentives to persuade drug companies and others to spend money trying to discover new drugs and treatments, or medical advances will cease.

The other alternative is regulation. In health care, that will mean either price controls, with bureaucrats dictating the price companies can charge for drugs and treatments or, it will mean something like NICE which force companies to regulate their prices themselves.

While Republican ideologues in the U.S. may baulk at such bodies as interfering in the market, what they fail to understand is that the market does not work in this case and so something else is needed. And if you are a capitalist ideologue, bodies such as NICE which “encourage” the companies to engage in some form of “self-regulation” would seem to be the most attractive solution.

This is a question that usually comes up when dealing with exploding cars and other examples of capitalism gone crazy. Unfortunately, people are finding that such cases of “capitalism gone crazy” are more common than they would have believed. One such case is health care.

People around the world, at least in the richer nations, are starting to grapple with the cost of health care increasing at an astronomic rate. Coupled with the aging of the overall population in these countries, resulting in a greater proportion of the population requiring more health care services, there are dire predictions that health care costs are out of control.

In the U.S., many predict that Medicare, the government program of health care for the elderly, will take up an unaffordable portion of the federal budget in the not too distant future unless there are reforms to the system. And this trend is finally persuading more Americans to take a serious look at health care systems in other country as inspiration for reform, rather than succumbing blindly to political slogans of “socialised medicine”.

One such system often cited or examined is the British National Health system. In particular, many countries are looking at one aspect of the system: the National Institute for Health and Clinical Excellence (“NICE”). NICE’s basic function is to evaluate medical treatments and drugs for their efficacy and efficiency. The part that is an innovation over other existing such bodies is that it also conducts studies on, and sets bars on, the cost effectiveness of those treatments.

On reflection, the idea behind NICE is so simple and obvious that I have to admit that the whole time I was living in Britain I had assumed that such a body existed. I was truly surprised to learn from a NY Times article that NICE is a relatively new innovation. (Surprised not only at the newness of the body, but that it is actually an innovation.)

Why was I surprised? Having lived with the National Health for so long, I know as well as most Britons that the system is chronically underfunded and, as a result, notorious for delays in treatment and sometimes outright lack of care. But this is essentially the same problem that all health care systems around the world face, even those that are “private”, relying on a market system of private insurance to cover health care expenses.

Fact of the matter is that when they are sick, people will do most anything, and spend anything, to get better. The inevitable result is that no matter how much money society has, it will never be enough to provide as much health care as people want. This situation is only exasperated by the increasing cost of health care, and in particular the cost of drugs.

This gives rise to many of the problems currently faced by health care systems for two broad reasons, both illustrated in the NY Times article. The first, and more obvious, reason is the question I asked in the title. What price life?

The wife of one gentleman denied cancer treatment, at least partly, as a result of a NICE ruling has this to say in the article.

“It’s hard to know that there is something out there that could help but they’re saying you can’t have it because of cost,” said Ms. Hardy, who now speaks for her husband of 45 years. “What price is life?”

It’s a very emotive question to ask and one which I would imagine anyone would ask faced with a similar situation. And like most such questions, on further reflection it is neither reasonable nor fair.

Let us examine the situation objectively. First, is it right to put a price on life? Well, ask yourself this hypothetical question: the treatment for Mr. Hardy would cost $54,000 over six months. But what if it costs $54 million? Is that a reasonable amount for the National Health to spend on the treatment? What about $54 billion?  Unless Mr. Hardy was your love one, you would have a hard time trying to make the case that someone else should spend $54 million, or billion, on prolonging Mr. Hardy’s life for six months.

And that’s not to be heartless. Think of what else could be done with that money? (This is what economists call opportunity cost.) To help or treat others, help alleviate hunger; you name it, there is some worthy cause out there. In a world with finite resources, using some resources for one thing, or in this case on one man, means taking it away from something, or someone, else. If you place equal value on all human life, it is difficult to make a rational case for spending such a large amount on a single individual over spending that same amount on several people.

If you accept that argument, then the opposition to putting a price on Mr. Hardy’s life is not an objection based on principle, but one based on the amount of money involved. In other words, you have put a price on life, but you are making the argument that the price is small enough you should spend the money. That may be a valid argument, but it is a different argument from saying that one cannot put a price on life.

As long as the Hardys, and others, are making demands on a common, shared resource, there will be others who make an equally justifiable demand on that same resource for other needs. And while the Hardys may not agree with those who do put a price on Mr. Hardy’s life and deem the money better spent on other needs, it is unfair for Ms. Hardy, or anyone else, to question the morality of such decisions by asking loaded questions like, “What price life?”

The other reason for the problems of health care will be detailed in the next blog.