Elisabeth Warren Has a Plan for America First
I plan to vote for Warren in the primary and general election, but I am not thrilled by all aspects of her plan for economic patriotism. I also have doubts about medicare for all (good policy bad politics) and forgiving student debt (good politics bad policy).
Trying to be brief and actually get to the topic of this post, my problem with Medicare for All is that people fear change and, while a majority support a Medicare option, a minority supports just enrolling everyone in Medicare aotomatically. I am in that minority, but Medicare for All is bad politics and also will never actually be approved by the Senate. Student loan forgiveness is the opposite. Many people burdened by student debt will vote for a candidate who promises to forgive it. But they are not the people most in need. They are US college graduates and relatively wealthy (even if not as fortunate as older graduates who got degrees when tuition was much lower). I do support free (public) college. The difference is that not charging tuition encourages people to get bachelors degrees which reduces supply of people without bachelors degrees and increases their relative wages (see the huge accidental experiment of enrollment to avoid the draft during the Vietnam war and the dramatic decline in the college wage premium). Given to someone who has already made the decision does not have this effect. It is special interest politics with beneficiaries who know exactly who they are at the cost of other programs or lower taxes or who knows ? (well rich people know they will be hammered by Warren and will vote for her only if they are patriotic, but there aren’t many of them).
OK now the plan for economic patriotism. I am sure this is excellent politics. I support some of the proposals (more money for apprenticeships so not all of the subsidies for education go to fancy pants bachelor’s degrees). I object to some. I also disagree with some of the analysis (which is a critique of work by friends of mine and is provocative and very high quality for a candidates web site).
First the general focus is on helping US workers also against foreign workers. I know this is almost universally accepted as a goal, but I find myself in the tiny minority who are against that. The income of US blue collar workers is pretty high up the world income distribution. I reject nationalism and oppose the aspects of patriotism which overlap with nationalism. This is a question of values not analysis and I won’t type more about it.
Second, the web page argues that the problem for US manufacturing workers is trade not technology. This is actually engaging in the economics debate at a reasonably high level.
Others blame “automation” for American job losses, especially in manufacturing. It’s a good story — robots and other new technologies made American manufacturing workers more productive, so companies needed to hire far fewer actual human beings. A good story, except it’s not really true. Recent research finds this story is based on a widely-held misunderstanding of the data on American manufacturing output, and a statistical quirk about how productivity is measured in our computer industry. There is actually no “evidence that productivity caused manufacturing’s relative and absolute employment decline” in America since the 1980s. Meanwhile, Germany has nearly five times as many robots per worker as we do and has not lost jobs overall as a result.
Now that’s pretty good for a candidate’s policy shop. In fact it is an excellent one paragraph introduction to the debate. First it is definitely true that the rapid increase in measured productivity in manufacturing is concentrated in information technology and absolutely would have been missed without careful estimates of the quality of computers and such (which makes international comparisons misleading). On the other hand, it is generally possible to get the result one wants by slicing the data. It is generally true that productivity growth has not been fast except in the sectors where it has been fast. I have more trouble with the comparison with Germany. The proposal is that the US should do what Germany does. The problem is that not all countries can run trade surpluses (unless we discover new markets for our goods on, say, Mars). Germany is a strange case due to the Euro (I will *not* get started on that today). Excluding computers and comparing the Germany not, say, Italy is cherry picking twice. Very standard for a campaign document but I don’t like it.
But also, and more in particular, I note the equivocation here ” Germany has nearly five times as many robots per worker as we do and has not lost jobs overall as a result.” The USA has not lost “jobs overall” either. Employment growth “overall” has been solid. The sentence switches from per worker (not per manufacturing worker) to the (implicit) reference to the decline in US manufacturing employment. Also, while Germany has not lost manufacturing jobs, it hasn’t gained them either. German manufacturing employment 7,971,503 is below the all time peak 8,451,905. The decline in the share of US workers in manufacturing is partly due to trade, but also largely due to the increase in the share of consumption of services and increased productivity. Or in a picture which is worth a thousand words, the share of Germans employed in manufacturing fell from 39.5% in 1970 to 19.8% in 2012
Click on picture to enlarge.
Over the same interval, the share declined from 26.4% to 10.3% in the USA. 10.3% is a lot less than 19.8% but the trends are similar. Of course, Germany was selected by the Warren campaign, because it has unusually high share of employment in manufacturing. Again, it is arithmetically impossible for all countries to run manufacturing trade surpluses as Germany does.
I think
Third Warren says the US Federal Government shouldn’t give so much intellectual property away. She opposes the effective (massive) subsidy of venture capital (which is concentrated in two sectors information technology and biotechnology — that is making money off of DARPA and the NIH).
Taxpayers should be able to capture the upside of their research investments if they result in profitable enterprises. Like any investor, taxpayers should get a return on the risky investments they are making in R&D. That can take various forms. Taxpayers can: get an equity stake in any company that relies on intellectual property these investments create; retain royalties on publicly funded innovation or a golden-share of the patent revenue; or require the companies benefitting from publicly funded R&D to reinvest profits back into domestic production, R&D, and worker training programs, rather than into stock buybacks.
I support that subsidy. Like Warren, I am not a market fundamentalist. I have no problem with picking winners at the level of sectors. I don’t like the fact that venture capitalists get super rich off of publicly funded research, but the current system gets the job done and that’s important. Basically, I see more enforcement of intellectual property protections as a bad thing (they are needed to get for profit firms to invest in R&D but taxes work fine for DARPA and the very popular National Institutes of Health).
The proposal seems to me to require a lot of work by lawyers to define and apply the general rules. That is a social cost. Also one effect is that much of the work will be advising companies to have as little interaction as possible with DARPA and the NIH in order to avoid the trouble.
I’ve met the guy (Sam Broder an amazing guy with an amazing life story) who lead the team at the NIH which showed that AZT fights HIV, who was furious that Burroughs Welcome charged a huge price for a simple molecule which they didn’t invent with a huge benefit which they didn’t discover (without a lot of public sector help). As director of the National Cancer Institute, he made a rule that if NCI scientists were involved in the development of a drug, then they had to be involved in setting the price. This was a disaster. The main (almost only) result was a barrier to collaboration between NCI scientists and pharmaceutical companies.
I say that the best thing to do with publicly produced intellectual property is to just give it away.The DARPA + NIH budgets equal about 3 of Federal Spending. If the only return on that investment is the benefits to final users of the internet and effective treatment for HIV, that’s fine by me. Getting some of the profits for the Federal Government is not worth the hassle (which would be massive).
The real problem is licensing agreements with contractors like CRADAs and the like. These things are used to paper over funding shortfalls and allow deep pocket private sector players to cherry pick the fruit of years of government investment and lock it up under non disclosure agreements. Fully fund the research so the researchers don’t need to look outside to fund their projects. Then give away the intellectual property. It belongs to everyone. That is by far the best model.
I have two thoughts. First even if the main current problem is CRADAs etc, a new project to capture profits from intellectual property for the Treasury, could create new severe problems. It isn’t possible to decide what would happen under a new policy by looking at what has happened without it.
Second I have mixed feelings about free access to intellectual property. It is very very common for publicly funded basic research to remain research without development. At the end of the publicly funded project, there is the need for huge investments to bring the invention to market. Currently, that only happens if the development stage is rewarded with a patent.
I think the full funding you mention isn’t fully funding of investigator initiated grants. It would imply the Federal Government working on the D of R&D and that is a major reform.
I am thinking of NIH funded research. Currently grant funded researchers hand things off to pharmaceutical companies which sure won’t bring a drug to market if they don’t get a patent.
I’d suggest walking Jim Allison: Breakthrough. It describes what Allison (2018 Nobel) did after seeing that a monoclonal cured cancer in mice. The part that followed was the hard part. I am quite sure the film is accurate (my dad has collaborated with Dr Allison). It shows what is wrong with the combination of publicly financed basic research and for profit development. It also makes it clear that a fully funded alternative would require a lot of funds (about $ 40 billion a year so another 1% of the Federal budget). Probably a good idea but a very very big project.
Robert:
You are wandering into an area which I read quite a bit on from JAMA, Health Affairs, NEJM, etc., study, and also have practical experiences from planning the manufacture of pharma and also bringing healthcare supplies such as CF Dialyzers to market. I have any number of posts on Angry Bear about the rising costs of healthcare and its associated factions. Most recently, World Health Organization accomplished a 173 page technical report called “Pricing of Cancer Medicines and Its Impacts.” Just from reading it, I am pretty confident it was not written in the US. I was led to it by the news publication SwissInfo which I now get weekly. I posted on this also.
I wrote one post on Angry Bear taking parts of this report and using it in the text of my post. During my research of the topic of drug and cancer drug pricing I ran across a story about Polio and how Jonas Salk brought it to market. The Salk Polio vaccine R&D was federally funded which made it impossible for him to patent it. Even so, the profits on the vaccine (along with Sabin’s) were fruitful. In answer to a question of why he did not patent his vaccine, Salk did not answer with the comment of not being able to patent it due to it being funded by the government. Instead he said; “Can you patent the sun?” and the title of my post.
The SwissInfo article picked on two cancer drugs Herceptin being one and Mabthera and charted them in their article. 80 to 85% of the market pricing was considered margin with the balance covering distribution, manufacturing, and R & D. Herceptin has earned Roche CHF82.8 billion over 20 years. When asked why such a high price when costs have been paid out, there media responded; “Prices are based on the benefits they bring to patients and society as a whole.” This goes well beyond recouping costs and gaining future funding and it is an attempt to build a moral foundation to justify a high return which is opposed to Salk’s understanding of why he did not attempt to recoup profits. Back to The WHO . . .
I apologize for the length of this comment. There are no short answers without explaining where some of this reply emanates.
“Page 23: Of the 156 US FDA-approved cancer medicines identified, 99 had data for more than half of the years since approval and were included in the analysis. Total sales from this set of medicines (US$ 106.9 billion) represent 80.4% of the estimated global revenue of cancer medicines in 2017 (US$ 133 billion.” There (me) are 3 companies which represent the bulk of cancer drug manufacture including R & D.
“Page 24: The analysis suggests the sales revenues of a majority of cancer medicines are significantly above the risk-adjusted costs of R&D estimated in the literature. As shown in Fig. 3.5, as at the end of 2017, the cumulative sales of 73 (74.5%) and 56 (57.1%) cancer medicines since launch were above the assumed median risk-adjusted R&D costs of US$ 794 million and the upper threshold of US$ 2.8 billion, respectively. In total, 99 cancer medicines generated US$ 1 216.7 billion in cumulative incomes between 1989 and 2017, representing an average return of US$ 14.50 in sales income (range: US$ 3.30–55.10) for every dollar invested for R&D, assuming a risk-adjusted R&D cost of US$ 794 million (range: US$ 2 827 million; US$ 219 million). The returns from this set of medicines will continue to rise because many molecules have long remaining periods of market exclusivity (e.g. ibrutinib, nivolumab, palbociclib, pembrolizumab).”
“Page 25: The median time to generate revenue to fully cover risk-adjusted R&D cost of US$794 million was 3 years (range: 2 years; 5 years, n=73). For the maximum estimated risk-adjusted cost of R&D (US$2 827million), the time to cost recovery was 5 years (range: 2 years; 10 years, n=56). A threshold analysis found that 99% of the 45 cancer drugs with sales data 10 years from their first year of launch had generated incomes sufficient to at least offset the risk-adjusted R&D costs irrespective of the assumed threshold values for R & D costs.” This is portrayed in Fig. 3 on page 25.
In 2017 dollars, pembrolizumab goes for 5.88/molecule, nivolumab is 9.76/molecule, and ipilimumab (which I can not find on Fig. 3.5). My own med is Rituxan which I have found to work since steroids no longer did the trick. $93.86/molecule give through 4 one litre doses. If it did not work, I would be living in a bubble so as not to be injured.
Bristol-Myers Squibb, Ono Pharmaceutical and Merck & Co – accounted for nearly 97% of the 2017 global market for the melanoma meds, 85% of the lung and breast cancer meds, and 68% of the prostate meds for cancer. The HHI is 3944 representing a highly concentrated market.
I have already said too much here. I wanted to add detail to your comment. Companies probably will not want government sponsored R & D as it takes from the foundation of pricing establishment (average return of US$ 14.50 in sales income (range: US$ 3.30–55.10) for every dollar invested for R&D) and minimizes the amount the longevity of exclusivity through patents.
Dear Run
That is a long comment and I learned a lot from it. I comment on comment that sure corporations do not want Federal development to follow public research. They make lots of money taking research and developing it. Big Pharma (PhRMA) will welcome a Federal pharmaceutical development institute about as much as Health Insurance companies (AHIP) welcomed a public option. They do not want a super deep pocketed competitor which does not need to worry about risk.
On Nivolumab abd
Pembrolizumab, they better enjoy their Nobel Prize (2018) and huge profits, because they have new competition. There are antibodies to the PDL-1 on tumors which binds to PD1. That is a more logical target
I say invest in
Atezolizumab PD-L1 2016,
Avelumab PD-L1 2017, and
Durvalumab PD-L1 2017.
That’s they way to go. I also advise patients to eat some dried cyanobacteria called Spirulina. It;’s a natural product, so it’s hard to patent. https://bit.ly/2MCtCC0
(do not eat this stuff if you have arthritis or celiac disease).
I am serious.
Robert:
Here is the link for the WHO Technical Report: https://apps.who.int/iris/bitstream/handle/10665/277190/9789241515115-eng.pdf?sequence=1&isAllowed=y Pricing of cancer medicines and its impacts.
Another organization which is used by pharmaceutical companies to establish pricing for new drugs also evaluated 100 drugs and commented on their pricing. Of the 100 or so drugs on the market, they found 9 to be over priced and lacking the value to justify the new price which was established by the companies. I have not written on the ICER report as of yet. The report includes letters from the companies of the nine chosen ones attempting to counter the ICER findings which makes it more interesting. The #1 over priced drug was Humira and the second was Rituxan.
I spent almost a month in the hospital in 2015 waiting for something to work. The doctors finally received approval for Rituxan to be used on me. In a few days they released me to go home. I came back three more times for additional doses. Rituxan does not have to be as expensive as it is. Another drug . . . Novartis released a new cancer drug called Kymriah, supposedly a 1-time treatment. Cost is $475,000 for children and $350,000 for adults. I am sure some how the price will be paid if it works. The price was a reduction from what the ICER determined it should be priced-at, which was more than twice. A value analysis was used to establish a price that can be justified morally, which is pharma’s new approach.
I plague my son’s brother-in-law who is a VP for Elanco. I started talking about this and that I had been approached to do some technical writing for a movie or a series on medical issues. I did not know his job initially until my son told me later.
Everything I have written on AB, I have pointed out to Congressional representatives and various people with influence, directly in print and on social media. Most people have no clue as how to address the issues. It is my background in manufacturing and supply chain plus a few years working directly in the healthcare industry do I have some knowledge of how the sausage is made. One of my old drugs is on the list of being too expensive. It is >50 years old.
The attack has been on pricing by politicians. My point? If you do not understand how they derive that price and what the costs are, how does one know what a fair price and return is? They do not and they are attacking prices to gain the political attaboys. They seem to believe doctors know what prices should be and druggists can suggest other options. Superficial fix to the issue. There is the link for the WHO report. I will put the link out for the ICER report also.
Thank you for your comment.
Robert:
This/these sentence(s). “Germany has nearly five times as many robots per worker as we do and has not lost jobs overall as a result.” The USA has not lost “jobs overall” either. Employment growth “overall” has been solid. The sentence switches from per worker (not per manufacturing worker) to the (implicit) reference to the decline in US manufacturing employment.”
Manufacturing pays more than service related jobs? I do not believe there is an equality to manufacturing jobs and service jobs.
This/these sentence(s). “Also, while Germany has not lost manufacturing jobs, it hasn’t gained them either. German manufacturing employment 7,971,503 is below the all time peak 8,451,905. The decline in the share of US workers in manufacturing is partly due to trade, but also largely due to the increase in the share of consumption of services and increased productivity. Or in a picture which is worth a thousand words, the share of Germans employed in manufacturing fell from 39.5% in 1970 to 19.8% in 2012.”
If you are losing manufacturing jobs to Asia, it is the transfer of the job to Asia. Buffet decided not to invest in capital in the US to preserve Hathaway. He allowed the transfer of the business and the associated jobs to Asia. For what reason? Not the cost of Labor; but, he did it because he realized the cost of Overhead in recapitalizing the factory was far higher and he would lose out as did one of his competitors. US Overhead is far higher than Overhead in Asia. Overhead in the Manufacturing is higher than the cost of Labor.
My experience in going through manufacturing companies has been, I can not change Overhead as much of it is mandated by law. I can add a 5 axis CNC built in Asia to a shop floor in the US which will replace 4 jobs done on separate machine stations. This will impact Labor and eliminate the associated Labor; However it is still a large investment to do so.
Robert, this is not a critique of your post. I am talking here and telling you what I have experienced.