Just Because A Market Benefits From A Gov't Handout Doesn't Mean It's Good Overall

from the looking-at-the-bigger-picture dept

Arnold Kling rips apart a particularly silly New Yorker article by James Surowiecki which attempts (and fails) to show that libertarian economists are hypocrites. The basic reasoning from Surowiecki is that libertarian economists believe strongly in market forces -- but, at the same time, the stock market has reacted positively to news of a potential economic stimulus package. Thus, he concludes, libertarians should support the stimulus package (the market says so!) even if the concept of an economic stimulus package goes against libertarian ideals.

This is silly and wrong for a number of reasons, but it brings up a mistake that I've been seeing made around here all too frequently: the idea that if one market benefits from a certain government handout, then clearly "the market" has benefited overall. So, of course the stock market is looking forward to a government handout -- because those involved in the stock market will benefit from such a handout. However, that does not mean that it's really the best thing for the wider economy. Surowiecki's mistake is thinking that the stock market is a proxy for the overall economy. That's the sort of mistake made by someone totally unfamiliar with the stock market -- so it's a bit surprising to see Surowiecki make it.

As for the similar arguments I've been seeing around here, some of our more vociferous patent system defenders have been posting links to studies that have showed that certain industries have benefited from patent protection. Well, duh. But, of course, those industries don't represent the larger market. So, for example, there is some evidence out there that pharmaceutical companies have benefited from patent protection, but there's also even more evidence that doing so has come at a huge cost to actual healthcare, which has a huge multiplier effect on the economy (in a bad way). The fact that one single segment of an industry benefits from government handouts -- whether in the form of a stimulus package or a gov't granted monopoly -- is hardly proof that the wider market is aided by it. In fact, historical evidence suggests just the opposite. Investment is put towards these more inefficient (on purpose!) markets, rather than what would best serve the wider market.


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  1.  
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    Claes, Jan 22nd, 2009 @ 5:26am

    Reminds of what Johan Norberg writes in one of his books defending capitalism - that many people seem to think that what capitalists want is capitalism although the truth is rather that each capitalist wants to have a monopoly.

     

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    Erik S, Jan 22nd, 2009 @ 5:34am

    This is especially amusing since the stock market is dominated far more by emotions and hype then any actual "market forces." This financial crisis began as a mostly made up catastrophe that only became true because everyone got all panicky about it.

    "The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'"

     

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    Anonymous Coward, Jan 22nd, 2009 @ 5:40am

    You create your own reality, so I have to agree with #2. If you want change, CHANGE something or shutup!

     

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    Anon2, Jan 22nd, 2009 @ 6:08am

    Re:

    Indeed, this is why capital markets are poor indicators of underlying economic realities and fundamentals during the rapid formation of bubbles, and during times when the bubble bursts. Psychological factors overtake rationality in the rush to get into or out of a market, and markets lose their efficiency (their ability during stable periods to rapidly absorb all relevant information and translate it into relatively accurate pricing of securities). When not even company insiders or the analysts who track those companies understand the balance sheets, it's impossible for the markets to accurately value a company's securities.

    But times of panic are also times of opportunity for those who can remain calm, dispassionately assess the overall situation, and make rational investment decisions. It doesn't help huge institutions that need to manage multi-billion dollar funds, but I guarantee you that a year or two from now we'll start learning about some really savvy investors who positioned themselves well during this period.

    It also underscores why the smarter route is to take a long-term approach, instead of focusing on quarterly "performance."

     

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    Phillip, Jan 22nd, 2009 @ 6:11am

    Nail on the head.

    Mike you make me want to change my major to economics sometimes.

     

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    Anonymous Coward, Jan 22nd, 2009 @ 6:20am

    Re:

    "This is especially amusing since the stock market is dominated far more by emotions and hype then any actual 'market forces.'"

    I think its funny you believe "market forces" are somehow seperate from "hype" or "emotions". This missunderstanding might be one Mike shares with you, I dunno, but its certainly not true.

     

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    Anonymous Coward, Jan 22nd, 2009 @ 6:27am

    Some Truth

    "So, for example, there is some evidence out there that pharmaceutical companies have benefited from patent protection, but there's also even more evidence that doing so has come at a huge cost to actual healthcare, which has a huge multiplier effect on the economy (in a bad way). "


    Lets not forget the C-officers at a Pharma have a LEGAL responsibility to act so as to generate the maximum profit for THIER INVESTORS . . . they have no fiduciary responsibility to the economy as a whole or to the over all healthcare industry. This is the corporate structure in the United States, this is Capitalism in the UNited States, this is the "free market" in the UNited States.

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 6:55am

    Perspectives

    I have seen two themes over and over again with respect to pharmaceutical patents and providing the money needed to research new drugs in studies and papers by anti-patent people:

    1. Pharmaceutical patents do not provide benefit for society as a whole (I assume because patented drugs cost more than unpatented drugs).

    2. Some kind of support is required to replace the incentive provided by patents because of the amount of money it takes to develop a new drug (estimates vary, but $400 to $500 million per developed drug seems like a average that has support).

    What these studies have never addressed satisfactorily is whether society would have received the same benefit from the pharmaceutical industry without patents that it has with patents; i.e., would the pharmaceutical industry have developed the same drugs without patents that it did with.

    In fact, there is evidence that the pharmaceutical industry would have concentrated on making existing drugs really cheap, but development of new drugs would crawl or halt altogether.

    Question: Is society better off without new life-saving drugs, or is it better off with expensive life-saving drugs?

    Anti-patent studies have yet to provide an option to the support patents currently provide, other than, if there is a need, the market will find a way. Maybe it will, and maybe it won't. Maybe the market will be so busy supporting innovative software developments that there will be no money for new AIDs drugs. Faith is a good thing when it comes to God and the church, but with investment intensive pharmaceutical research it is a dicey thing.

     

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    Anonymous Coward, Jan 22nd, 2009 @ 7:10am

    Re: Some Truth

    Thats fine. But the government is the one controlling patents. they should have a fiduciary responsibility to the economy as a whole.

    We're not saying that pharma should choose not to apply for patents. We're saying the government shouldn't allow it. Well, thats a simplification of the argument, but yea, thats a generalized summary.

     

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    Anonymous Coward, Jan 22nd, 2009 @ 7:12am

    Re: Perspectives

    The incentive is competition. Not just cheaper drugs, but better drugs. You want them to buy from you. Why is it that every other market has no problem putting millions of dollars into research and development with or without patents, but pharma requires patents. Why is it that people believe competitive forces wouldn't work there?

     

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    Anon2, Jan 22nd, 2009 @ 7:29am

    Re: Re: Perspectives

    Can you cite examples in "every other market" that companies will invest not millions but hundreds of millions in R&D to bring a new product to market, absent some sort of rock-solid protection that competitors will not immediately be allowed to reverse-engineer the product and bring it to market?

     

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    d0n0vAn, Jan 22nd, 2009 @ 7:51am

    Excellent

    Copyrights and patents are legal monopolies and monopolies are bad for individuals. It doesn't matter if they are books, drugs, or technology.

    Copyrights made sure that only a limited number of books were printed and distributed in Europe while in America the number of copies sold and the amount of money made for the author were significantly higher than Europe.

    Yes, the drug example is spot on. Everyone complains about the cost of health care, but no one looks into the reason why. They want the government to fix it and I am sure they will. The fact that you will be told to stand in a line like the DMV will the least of your worries. Wait until care is rationed and your 45 year old mother needs a new heart but the funds will be given to a 23 year girl, because she graduated college and is younger.

    Cellphones - what the fuck can I say about that? It should not cost X number of dollars and lock a person into a two year contract with a several hundred dollar fee if I leave the relationship. I could go on, but I'm late for class.

     

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    Anonymous Coward, Jan 22nd, 2009 @ 7:55am

    I AGREE WITH SUROWIECKI

    I would benefit from a government handout. And if I benefit everyone benefits!

     

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    Trails (profile), Jan 22nd, 2009 @ 7:56am

    Another point

    A stock market responding favourably does not even mean enhanced long term market viability for that market.

    The increase in the market is a result of short-term confidence brought about by the package. There are plenty of protectionist, interfering was for a gov't to cause a short term market increase.

    Lubricating the credit market was a decent idea, but proping up businesses, e.g. detroit 3 (Big 3 no longer apt, imo), is likely to do nothing more than delay the inevitable at the expense of the taxpayer.

    Additionally, regulating predatory or exploitive practices, e.g. the repackaging of subprime mortgages to obscure risk, is not protectionism so much as good sense. Fraud is illegal too, and for good cause.

     

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    methylamine, Jan 22nd, 2009 @ 8:16am

    Very well said!

    Yes, yes, yes!
    Read Henry Hazlitt's book, or any good Austrian economist...as you probably have, author.

    The hidden effects of subsidizing one industry are that you have to confiscate capital from other industries to do so; how do you know what those industries would have done with that capital? You don't, and that's the hidden effect.

    Only mutually agreeable, voluntary transactions free of coercions are TRUE free-market economies. Anything else is a distortion, and leads to disasters like the one we're living through right now.

    Buy silver and gold. Keep it physically in your possession. It's going to be a rough 5-10 years.

     

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    DueDoe, Jan 22nd, 2009 @ 8:27am

    Done with Intent

    This mess was done with then intent do just what is going on; lower the standard if living in the USA to better compete in the New World Order market. Look at when the dollar was allowed to go free float on thew world markets, and what happened from then until now. Captilisam only works until those at the top get to much captial! Than it collapses onto its self. Again, Again!

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 8:48am

    Re: Re: Perspectives

    Stop...What industry puts hundreds of millions of dollars into research and development without patents?

    I never said competitive forces will not work. In fact, I believe they will. However, would you rather invest $400 million into the development of a new drug on which you are unlikely to make an average rate of return, or just put it into investments that you can make an average or higher rate of return. Investment does not live in a vacuum.

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 8:49am

    Re: Re: Re: Perspectives

    Darn...I should have read your comment before I posted.

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 8:52am

    Re: Very well said!

    You make my point exactly. If patents do not protect pharm (or any other industry), the money will go where it is less risky and more assured of return. It will go into innovation, not invention. Ergo, short term investments will benefit, long time or high initial cost investments will suffer, and probably die in the private sector.

     

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    J Dole, Jan 22nd, 2009 @ 8:53am

    Re: Another point

    Exactly, spot on.

    In addition, libertarians don't have a realistic idea of the 'free market' is anyway. There never was a free market, and there will never be a free market. Once you realize that you can move forward.

    Proper regulation is essential to a stable economy, we are seeing the direct result of deregulation right now with our financial crisis.

    Even the 'master' Greenspan admitted in front of Congress that his world model of companies doing what's right for themselves was wrong. You can't trust them to do whatever they feel like. You need to regulate them.

    No kidding, and thanks for realizing that after it was too late.

     

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    Douglas Gresham, Jan 22nd, 2009 @ 10:00am

    Re: Perspectives

    Actually, I'd contend that the patent system is holding back the creation of new drugs rather than encouraging them. Patents create misaligned incentives if we're actually talking about curing diseases. If one has the patent on the most effective treatment for a particular disease, then you've essentially got control of that market even if your drug is a tiny amount better than the competition (unless your pricing is a long way out). This means there's a lot more gain in improving treatment for something pretty much cured - or more accurately, marketed as such - than for research into diseases in less affluent markets. There's also a huge incentive for the existing market leader to continually refine their drug, not to make it more effective but to renew their monopoly.

    It's something of a crisis in the industry - they're basically competing in a saturated market, and the individual best course of action doesn't expand that market and is destructive for the industry as a whole as well as being sub-optimal for curing disease.

    I also take exception to your last statement; software development and drug research are not zero-sum games. If getting rid of patents means more wealth is created, then both win. Anyway, medical research existed before pharmaceutical patents, so the idea that it'll vanish is laughable.

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 11:01am

    Re: Re: Perspectives

    Douglas:

    Do not contend. Prove.

    In contrast to your contention, I offer treatment of one condition, the reduction of cholesterol. There are several competing treatments for reducing cholesterol. Forget that we know anything about any of these medicines and assume we began with six different cholesterol medications.

    We soon discover that one class of cholesterol medications causes a rare but serious condition and some people are unable to use that medication. Fortunately, there is a competing medication that does not cause the condition (or does so in a nearly insignificant portion of the population). None of these medications have control of the market, except for the market for those people who are affected by the "rare by serious" condition, who are only able to take one medication.

    Now, I am happy that the medical company received millions in patent profits so it could afford to investigate an alternative cholesterol-reducing drug that did not have the side affect. I wish I did not have to pay the premium, but a "free market" (though a free market has not existed back to the time of the cave man) would never have created my medication because the demand was insufficient to reimburse the cost of bringing the drug to market.

    I should point out that "refining" drugs is not patentable. The USPTO, district courts and the CAFC have thrown out the "improvements." Even if there was an "improvement," the original drug would be available as a generic once the original patent expires.

    I am unsure of what you mean by the pharmaceutical industry being in a saturated market. More people take drugs every year. The number of prescriptions grow yearly by double digits.

    As for medical research existing before pharmaceutical patents, that is true. Of course, that was also before clinical trials, thalidomide, and the increased cost and time it took to develop one drug. I suppose that when it cost $50,000 to bring a drug to market, it happened all the time. When it costs between $400 and $500 million dollars to develop a drug, it is laughable to think that someone would make such a dumb investment if the result could be reverse engineered almost immediately. Would you invest in a new housing development where the average price of a house was $1 million, and a second housing development featuring identical homes was built shortly after, with identical features, but cost only $100,000 each? To think the first investment would ever happen is laughable.

    As I have also pointed out in other posts, the pharmaceutical industry is about to face a huge crisis because development of new drugs is happening slower than old patents are expiring. In another decade the bulk of existing patents will have expired, and patented pharmaceuticals will make up less than 10% of all available drugs (it could be less than 5%). Pfizer is already feeling the pinch. Lipitor's patent is about to expire, and the patents on Norvasic, Zyrtec and Neurontin have already expired. Pfizer has been laying off researchers because their reduced income, soon to be reduced even more, will not support the current size of their research staff. If you want to halt all drug research by pharmaceutical companies, eliminate patents.

     

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    Douglas Gresham, Jan 22nd, 2009 @ 11:54am

    Re: Re: Re: Perspectives

     

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    Douglas Gresham, Jan 22nd, 2009 @ 12:19pm

    Re: Re: Re: Re: Perspectives

    Oops, I can't work the comment system.

    I haven't currently got the time to go over all the evidence for my contention, but I'll give you this as food for thought. Between 1995 and 1999 an average of 40 'novel molecular entities' were registered; between 1999 and 2004 the average was 28, and according to one Ben Goldacre are increasingly the same thing changed enough to get a patent - http://www.badscience.net/2008/09/the-medicalisation-of-everyday-life/ - incidentally he makes good points about over-medicalisation to the profit of pharmaceutical companies, which while isn't a result of patents certainly won't be helped by it.

    So we're seeing less new drugs now than in the nineties. Obviously we can't say with certainty that the drugs developed then would have been without protectionism, but what you can say is that there are diseases that are woefully under-researched (TB, malaria, HIV/AIDS, etc) that just aren't being addressed (why else would charities, the WHO and so on attempt to fund them themselves?). 10% of research capital goes into research that would help 90% of the global population, and much of the other is duplicated work to exploit the patent system (if anyone has a study on how much, I'd be fascinated - no time to look now). And this is all before we get into high prices through lack of competition, too.

    I'm not saying removing patents instantly solves this - flogging viagra to wealthy octogenarians will always be lucrative, I suspect - but they are a piece in the puzzle.

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 1:55pm

    Re: Re: Re: Re: Re: Perspectives

    Douglas:

    Interesting article. Mr. Goldacre essentially confirmed what I said. Drug patents are soon to become mostly irrelevant, unless something changes. As for the "changed enough to get a patent" is also somewhat irrelevant, because the first drug from which the changes derived will be based on an expired patent. So, do you get the original cheaply, or the "changed enough" drugs for a lot more? Market forces.

     

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    Mike (profile), Jan 22nd, 2009 @ 2:57pm

    Re: Perspectives

    1. Pharmaceutical patents do not provide benefit for society as a whole (I assume because patented drugs cost more than unpatented drugs).

    Yes, this is true, but for the wrong reason. It has nothing to do with the fact that patented drugs cost more than unpatented drugs, but with how health care would work in the absence of patents.

    2. Some kind of support is required to replace the incentive provided by patents because of the amount of money it takes to develop a new drug (estimates vary, but $400 to $500 million per developed drug seems like a average that has support).

    The $400 to $500 million is totally bogus. Read Merrill Goozner's book, and you'll discover the *real* number is more like $30 to $40 million -- at best.

    What these studies have never addressed satisfactorily is whether society would have received the same benefit from the pharmaceutical industry without patents that it has with patents; i.e., would the pharmaceutical industry have developed the same drugs without patents that it did with.

    You're asking the wrong question. It's not whether the same drugs would be developed, but if more people would be healthier. That's the key issue here, right. It's about healthcare -- not having more drugs.

    Question: Is society better off without new life-saving drugs, or is it better off with expensive life-saving drugs?

    Wrong assumptions. Woefully wrong assumptions. Redesign a healthcare system such that there are incentives to keep people alive, and there will be every incentive in the world to create new life-saving drugs *as well* as invest in preventative healthcare programs. The problem, right now, is that the patent system pushes most R&D money into monopoly efforts -- not into keeping people healthy. The incentives are misaligned.

    Anti-patent studies have yet to provide an option to the support patents currently provide, other than, if there is a need, the market will find a way. Maybe it will, and maybe it won't. Maybe the market will be so busy supporting innovative software developments that there will be no money for new AIDs drugs. Faith is a good thing when it comes to God and the church, but with investment intensive pharmaceutical research it is a dicey thing.

    Ok. As I said, all you need to do is align incentives -- and if you don't think that there's tremendous money to be made in saving people from AIDS, you're wrong. The incentives are there. It's just that the patent system has distorted them.

     

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    Mike (profile), Jan 22nd, 2009 @ 3:00pm

    Re: Re: Re: Perspectives

    Can you cite examples in "every other market" that companies will invest not millions but hundreds of millions in R&D to bring a new product to market, absent some sort of rock-solid protection that competitors will not immediately be allowed to reverse-engineer the product and bring it to market?

    There are tons of markets that require huge capital investments where there are competitors. Real estate. Semiconductors. Airlines. Competition is a good thing, not a bad thing.

     

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    Mike (profile), Jan 22nd, 2009 @ 3:01pm

    Re: Re: Re: Perspectives


    I never said competitive forces will not work. In fact, I believe they will. However, would you rather invest $400 million into the development of a new drug on which you are unlikely to make an average rate of return, or just put it into investments that you can make an average or higher rate of return. Investment does not live in a vacuum.


    Idiotic assumption: that you can't make a good return on saving lives.

    Sorry, that's just dumb. You're smarter than that Lonnie.

     

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    Mike (profile), Jan 22nd, 2009 @ 3:05pm

    Re: Re: Very well said!

    If patents do not protect pharm (or any other industry), the money will go where it is less risky and more assured of return. It will go into innovation, not invention. Ergo, short term investments will benefit, long time or high initial cost investments will suffer, and probably die in the private sector.

    Again, you are incorrectly assuming that taking away patents wouldn't open up a HUGE lucrative market in healthcare. On this, again, you are wrong.

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 7:28pm

    Re: Re: Re: Re: Perspectives

    Real Estate:

    Where is the new manufactured product?

    Semiconductors:

    Lots of patents here.

    Airlines:

    No manufactured product.

    Poor examples from where I sit.

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 7:29pm

    Re: Re: Re: Re: Perspectives

    Mike:

    However, it is extremely unlikely that we will have a comparison point in our lifetimes, so we will never know, will we?

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 7:31pm

    Re: Re: Re: Very well said!

    Ah, if there was only evidence to back up your belief.

     

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    Lonnie E. Holder, Jan 22nd, 2009 @ 7:58pm

    Re: Re: Perspectives

    Incentives always form a distortion, as will those you present.

     

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    Lonnie E. Holder, Jan 23rd, 2009 @ 6:34am

    Re: Re: Perspectives

    1. Pharmaceutical patents do not provide benefit for society as a whole (I assume because patented drugs cost more than unpatented drugs).

    Yes, this is true, but for the wrong reason. It has nothing to do with the fact that patented drugs cost more than unpatented drugs, but with how health care would work in the absence of patents.

    I suspect the absence of patents, or the presence of patents, other than incentivizing the development of new drugs, really has little effect on the health care system. Consider that only about 15% of all health care dollars go to pharmaceuticals. Then, figure how many of those dollars are for generics versus patented drugs. Then, figure how many of those dollars would be eliminated if patents did not exist, or if the drugs that were developed because patents exist no longer existed. The amount is a few percent. About twenty five percent of all health care dollars are spent because of life style choices. Think of how the health care system would work if people ate better, exercised more, stopped smoking, etc. Goozner has a great link to where money can be saved in health care (see below).

    2. Some kind of support is required to replace the incentive provided by patents because of the amount of money it takes to develop a new drug (estimates vary, but $400 to $500 million per developed drug seems like a average that has support).

    The $400 to $500 million is totally bogus. Read Merrill Goozner's book, and you'll discover the *real* number is more like $30 to $40 million -- at best.

    I read a lot of articles on Goozner's web site. I like his quote about developing a drug to treat Alzheimer's disease. The question he asked was "How much does it cost to develop a new Alzheimer's drug?" His answer: "Infinite," because one has never been developed. We have spent $100 billion to develop treatments for Alzheimers, thus far with little success.

    In amongst Goozner's numerous articles, he agrees that the cost of developing new drugs continues to explode, and he squarely points the finger at Wall Street. After reading his articles, I see why. Pharmaceutical companies have become enamored of big profits with blockbuster drugs. The blockbuster drugs are going away (wake up people), but pharmaceutical companies continue to spend billions to find another one (kind of like a drug addict, looking for his next fix).

    Goozner says that we need to reform how medical research is incentivized to wean pharmaceutical companies off blockbuster drugs. Interestingly, patent pooling is one of his suggestions.

    Goozner also pointed to an independent study performed by the Commonwealth Fund on how to save billions on our health care system. Predictably, the key begins with better life style choice (surprise!). The savings related to pharmaceuticals is, as one familiar with health care costs might suspect, relatively tiny.

    http://www.commonwealthfund.org/publications/publications_show.htm?doc_id=620087

    What these studies have never addressed satisfactorily is whether society would have received the same benefit from the pharmaceutical industry without patents that it has with patents; i.e., would the pharmaceutical industry have developed the same drugs without patents that it did with.

    You're asking the wrong question. It's not whether the same drugs would be developed, but if more people would be healthier. That's the key issue here, right. It's about healthcare -- not having more drugs.

    You are correct, and I was wrong, on this point. Goozner (I like his articles - lots of insight) says that because pharmaceuticals are so enamored with big profits, and blockbuster drugs generate big profits, the pharmaceutical companies have ignored drugs that might generate profits, but smaller profits.

    Goozner's example was antibiotics. There is a need for antibiotics to treat antibiotic resistant strains of bacteria. However, because there are lots of cheap antibiotics, such a drug would not garner a huge market share, being saved for only those cases that really need it, thus limiting profit. This new drug might well be patentable, but the patent alone is insufficient incentive to develop the drug; i.e., patents are irrelevant for any drug that is a non-blockbuster drug, which also implies that patents incentivize blockbuster drugs.

    I suppose that means that the pharmaceutical industry has been crying crocodile tears over their blockbuster patents. Time for a new business model.

    Question: Is society better off without new life-saving drugs, or is it better off with expensive life-saving drugs?

    Wrong assumptions. Woefully wrong assumptions. Redesign a healthcare system such that there are incentives to keep people alive, and there will be every incentive in the world to create new life-saving drugs *as well* as invest in preventative healthcare programs. The problem, right now, is that the patent system pushes most R&D money into monopoly efforts -- not into keeping people healthy. The incentives are misaligned.

    Your statement is sort of close, based on Goozner's comments. If it was the patent system only, then in theory all sorts of drugs would be developed. Of course, we know that is not true. Wall Street pushes pharmaceutical companies to develop blockbuster drugs in order to keep profits at a level they have come to expect. Patents are merely the tools that grant companies the monopoly for the blockbuster drugs. Of course, when the blockbuster drugs go away, then what do they do?

    What I wonder is what Wall Street will do when pharmaceutical companies are no longer able to generate the kind of profits they have in the past, which is coming very soon. As I have said before, I think pharmaceutical patents will resolve themselves, but it may cause a virtual collapse in the pharmaceutical industry. However, after that happens, the industry will reorganize and become stronger, and those companies whose fortunes did not hinge on a few blockbuster drugs will become the winners.

    What I wonder is why haven't smaller pharmaceutical companies tackled the lower margin drug needs? Sure, the profits are lower, but the opportunities and need are greater.

    Anti-patent studies have yet to provide an option to the support patents currently provide, other than, if there is a need, the market will find a way. Maybe it will, and maybe it won't. Maybe the market will be so busy supporting innovative software developments that there will be no money for new AIDs drugs. Faith is a good thing when it comes to God and the church, but with investment intensive pharmaceutical research it is a dicey thing.

    Ok. As I said, all you need to do is align incentives -- and if you don't think that there's tremendous money to be made in saving people from AIDS, you're wrong. The incentives are there. It's just that the patent system has distorted them.

    I was prepared to come in a disagree with your comments vociferously, until I read Goozner. Until I read Goozner, I admit that I did not understand your perspective. Yes, I agree that the patent system has distorted incentives. However, I am unsure of the solution. I am convinced that eliminating patents is not the solution, because I think that will cause unintended, disastrous consequences. In fairness, neither did you say we should eliminate patents without having an alternative incentive.

    I think there is an opportunity to prove an alternative system will work without doing anything to patents at all. We have hundreds of diseases (per Goozner) that need addressed. Experimental incentive programs could easily be focused on those diseases and conditions so that we can see just how well those incentives work. Once proven, the incentives could easily be expanded, and there would be a natural transition from patent based incentives to non-patent based incentives.

     

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  35.  
    identicon
    TDR, Jan 23rd, 2009 @ 7:28am

    And this is what happens when health care is held hostage by capitalism. People should be able to be treated when, how, and where they need it, no cost, no questions asked. Medicines should be developed for the patients, not for the market. And it shouldn't be limited to just prescription drugs, but valid alternative treatments as well. Why should the pharm industry be able to say that only a drug can cure a disease or infection? They do that to make money, not to help patients.

    And here's another thing to think about. Healthy people don't buy medicine. Pharm only profits when people are sick. So it's not in their best interest to ever allow any permenant treatments of conditions to be widely known, even if they do exist. Temporary medicines and treatments that only target the symptoms rather than the cause make them more money.

    Healthcare should not be a business. People should be able to get the treatment they need, in whatever form it really works best. And compassionate care. Just ask Patch Adams.

     

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  36.  
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    Lonnie E. Holder, Jan 23rd, 2009 @ 9:41am

    Re:

    TDR:

    The pharm industry does not say that "only a drug can cure a disease or infection." The only people who have ever implied that (to the best of my direct knowledge), are doctors.

    People are intelligent and can read. There are numerous studies and evidence that non-pharmaceutical treatments work for an array of conditions. I take herbals to treat two conditions that doctors would typically prescribe expensive drugs to treat. The herbals work great (I have stopped taking them and the condition comes back, so I have verified that the herbals are generating the benefit). However, I also take a couple of prescription medications.

    You also have to be careful regarding unlimited access to medical care. As with all things, once they become free, they become abused, and health care degrades again because people with hangnails are seeing the doctor. This problem is significant with the social medicine systems of some countries. Interestingly, the solution increasingly is to charge at least a nominal fee to prevent people seeking treatment for what should be a matter of an aspirin and a bandaid.

     

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  37.  
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    Mike (profile), Jan 23rd, 2009 @ 4:48pm

    Re: Re: Re: Perspectives

    However, I am unsure of the solution. I am convinced that eliminating patents is not the solution, because I think that will cause unintended, disastrous consequences. In fairness, neither did you say we should eliminate patents without having an alternative incentive.

    There are many potential solutions... but just as a thought experiment... take a life insurance company, and let them manage your healthcare for you. The longer you live, the more you pay -- and the earlier you die, the more they have to pay out.

    Suddenly, you have a company that has tremendous interest in keeping many people alive. Think it's worth it to them to spend a few hundred million on solutions that will keep people alive?

    Now have some fun with that thought experiment and keep working with it...

     

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  38.  
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    Lonnie E. Holder, Jan 23rd, 2009 @ 5:14pm

    Re: Re: Re: Re: Perspectives

    Mike:

    I have actually run a similar scenario with automobile insurance companies. What puzzles me is why they are not more proactive in automobile safety and why they have not implemented penalties for things like people not wearing seatbelts or speeding (if you were not wearing a seat belt at the time of your accident, then your deductibles are higher; similar if you were doing the same thing at the time of your accident). Yet, no one has taken the bait on this.

    As far as insurance companies, our company has started something kind of like this by covering the first $500 in wellness benefits with no deductible. More and more companies are focusing on wellness benefits to lower the cost of medical benefits. Of course, none of that does anything for the tens of millions of people with no insurance at all.

     

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  39.  
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    Marge Bouvier, Jan 23rd, 2009 @ 6:42pm

    Lifesaving Drugs for Restless legs

    Maybe R&D wouldn't cost so much if there weren't so many patents for every single step of the process. Whose numbers are these, anyway? Why should we believe their spin? Every supposed "new" drug I hear about is for some new fake syndrome (restless leg anyone?) or a "me-too" remake of Lipitor or viagra that the patent just ran out on.

    Life saving drugs? Last I heard, People aren't dying from impotence or hair loss, and heart disease is as high as ever. Bacterial infections FROM HOSPITALS are through the roof however, but I guess they're not sexy.

    Call me a cynic.

     

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  40.  
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    Lonnie E. Holder, Jan 23rd, 2009 @ 8:18pm

    Re: Lifesaving Drugs for Restless legs

    Call me a cynic

    Perhaps not cynic, but misinformed. Heart disease is not only not as high as ever, but it has been significantly reduced. People could reduce it a lot more by eating less and getting more exercise.

    http://www.latimes.com/news/science/la-sci-heart16-2008dec16,0,4530000.story

    As for infections, septicemia is the tenth leading cause of death, but as a percentage it accounted for 1.4% of all deaths in 2003 and 2004. "Through the roof" seems like a bit of an exaggeration.

    http://www.cdc.gov/nchs/data/nvsr/nvsr56/nvsr56_05.pdf

     

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  41.  
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    none of your beeswax, Jan 25th, 2009 @ 3:12pm

    Re: Perspectives

    Lonnie! Why am I not surprised to find you trolling yet another IP-skeptic blog?

    "What these studies have never addressed satisfactorily is whether society would have received the same benefit from the pharmaceutical industry without patents that it has with patents; i.e., would the pharmaceutical industry have developed the same drugs without patents that it did with."

    So it's entirely possible that society would have received just as much. And even then, the *net* benefit to society is what matters. Perhaps society would have benefited less from the pharmaceutical industry, but more in some other way, and lack of pharma patents might still have turned out to be better.

    "Is society better off without new life-saving drugs, or is it better off with expensive life-saving drugs?"

    And, of course, this time-honored strawman is erected yet again. I'll leave it to Mike to demolish it. He seems to enjoy it more than I do. :)

    "If there is a need, the market will find a way? Maybe it will, and maybe it won't. Maybe the market will be so busy supporting innovative software developments that there will be no money for new AIDs drugs."

    That is just plain ridiculous. You could use this same statement as a basis for recommending abolition of the software industry, Lonnie.

    Tsk, tsk. But I suppose I shouldn't expect a higher quality of argumentation from you.

     

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  42.  
    identicon
    Lonnie E. Holder, Jan 25th, 2009 @ 5:57pm

    Re: Re: Perspectives

    Cheesewax!

    I see that once again you have arrived late to the party and added...NOTHING! Congratulations for clarifying nothing, adding no facts, and rehashing issues that have already been sufficiently well covered in this thread. Please come back when you can offer yet more of your non-wisdom and non-knowledge!

     

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  43.  
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    none of your beeswax, Feb 8th, 2009 @ 1:20am

    Feeding the Troll (one more time)

    Lonnie writes:

    "[insult deleted]!

    I see that once again [insult deleted] and [insult deleted]! Congratulations for [false accusation deleted]. Please come back when you can offer yet more of your [insults deleted]!"

    None of the nasty things that you have said or implied about me are at all true.

    And given that you just posted a pure ad-hominem post, Lonnie, I think I can also safely say:

    Pot, kettle, you get the picture.

     

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  44.  
    identicon
    Lonnie E. Holder, Feb 22nd, 2009 @ 1:39pm

    Cyberstalking...

    Beeswax:

    You have become a truly frightening cyberstalker...I truly think you need professional help.

     

    reply to this | link to this | view in thread ]


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