Things Fall Apart

England’s anti-drug department has spent the past two years denying a freedom of information request in regard to its domestic strategy to battle drugs. The Economist reported last week that this sort of behavior is symptomatic of England’s freedom of information act, passed in 2000, which contains 23 “get outs” in order to prevent bureaus from having to hand over classified information. Too often these requests get caught up in a legal quagmire and take up to a few years to grant. What separates this case, however, is the creative justification by the Home Office for not releasing the records:

The reason is that next March the National Audit Office (NAO), a public-spending watchdog, is due to publish a report of its own on local efforts to combat drugs. The Home Office says that to have two reports about drugs out at the same time might confuse the public, and for this reason it is going to keep its report under wraps.

The Economist calls this “the most inventive interpretation to date” with regard to the FOI act:

This is believed to be the first time that a public body has openly refused to release information in order to manage the news better. The department argues that releasing its internal analysis now “risks misinterpretation of the findings of the [National Audit Office] report”, because its own analysis is from 2007 and predates the NAO’s findings. The argument uses section 36 of the FOI act, which provides a broad exemption for information that could “prejudice the effective conduct of public affairs”.

It’s a bit ironic that a law passed to increase transparency is being enacted in a manner that’s anything but. Were this a bank hiding info from their shareholders, the public might be angrier.

But what’s more revealing about this case is the way in which laws breakdown overtime.

One of the most admirable accomplishments of the founders was to create a foundation that would stand the test of time. The constitution is in a sense radical, but it is also practical and realistic in its approach. A lack of long-term foresight is one of the largest underestimated factors playing into new legislation. Too often the debate surrounds the magnitude of the problem rather than on the solution.

The idea that we can fix deep problems like healthcare or the economy in one bill is not only unrealistic, but it underestimates the dynamic nature of the problem. A close analogy is found in large struggling firms which seek to rectify their problems with a silver bullet: They’ll hire an outsider CEO, pursue large mergers and acquisitions, or try extreme new strategies.

In a report this week on Toyota, The Economist discusses how often the best solutions are the least flashy and exciting. The subject of the report is Toyota, whose CEO worries they are on the path to failure and is working carefully to rectify the situation. He is reportedly working with tips from Jim Collins’ book, How the Mighty Fall. In the book, Collins

advocates old-fashioned management virtues such as determination, discipline, calmness under pressure and strategic decision-making based on careful sifting of the evidence. Often, the leader best able to halt a downward spiral will be an insider who knows how to build on proven strengths while simultaneously identifying and eradicating weaknesses.

In line with this, continues The Economist:

Mr Toyoda’s approach is not visionary. It is simple, incremental and requires painstaking attention to what the customers want. That is its virtue.

Occasionally I’ll be watching late night (or early morning) business TV, and news anchors will often ask CEOs “How did you do it? What’s your secret?” And by now it’s a cliché for the CEO to answer that there are no secrets and the only recipe to success is doing a good job, taking care of fundamentals, and perhaps an ounce of fortune here or there.

In a sense, the sentiment that there must be some secret to success is even more fascinating than the fact that there is isn’t. The sentiment is somewhat understandable, especially given how many perceived geniuses see the world in a radically unique manner.

But there is something different from such academic or theoretical smarts and business smarts. What distinguishes the latter is not clarity of mind and vision, but an ability to be completely in tune with the details of their products and with what people want. From this perspective, it’s obvious why radical shifts make the least amount of sense, particularly when it looks like they’re being done for the sake of change, rather than to alter the underlying content. Rather it’s a question of inspecting resources, using them to their full potential, seeing how they’ve worked in the past, and making the sort of detailed tweaks here and there that, say, an inquisitive public looking for an overarching secret to success wouldn’t be interested in.

It’s also, once again, an issue of focusing on the solution not the problem. A radical problem – even a crisis – need not always require a radical solution. An appliance that won’t turn might just have a minor wiring problem. Debilitating diseases are often rectified by targeting just one type of molecule.

Too often these sorts of small but effective solutions are confused with finding a silver bullet to solve a whole problem. The smarter solutions are distinguished however in their scope, their maximized use of available resources, and their ability to work within the system rather than to replace it. For instance, we do have an advanced healthcare system, and it can align patients’ needs with doctors. But we do not have enough doctors. An analogy is to a new computer which won’t turn on because it’s unplugged.

It is this sort of nuanced thinking which needs to be applied to legislation: An eye for the long-term effects – when deciding on item prices, Costco CEO Jim Senigal thinks about the effect they will have 20 years down the road – maximizing current resources, and a careful expert look at the details involved and how they work. Where these approaches can't be used due to the nature of politics - say, a lack of expertise in government, or an inability to be flexible - then the solution needs to be reformulated or dropped. A half-assed solution is the worst kind.

-KJ

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Media (in order of appearance)

Photo: (1)Toyota Camry, 02/26/2009, ogieabatillas; (2)Akio Toyoda, 10/24/2009, Shimoken; (3)Weird Al in Line at Costco, 12/26/2006, Vaguely Artistic.

Video: (1)Video, MrAlstec channel, of the song "Things Fall Apart" by Built to Spill from their 2009 album There is No Enemy. Sphere: Related Content

The Right to Eat Unfortified Foods and Health Care Reform

Scientists have begun to question the benefits of consuming too much folic acid. Potential risks relate to new estimates on how long it takes the liver to convert folic acid (“56 times slower than previously thought”); its ability to mask particular types of anemia; and an increased risk in “accelerating the growth of existing cancers.” Unlike strained arguments for health care reform, this really is an issue that affects us all: The FDA requires folic acid fortification in staple foods like breads and cereals.

The FDA’s original report on the matter (from 1999) reasons that folic acid fortification prevents neural tube defects among pregnant women. Even if the risks of over-consuming folic acid are all made up, the logic still escapes me for why everyone’s daily bread has to be modified.

The controversy regarding folic acid is just unfolding, and in all fairness it remains on the fringes of mainstream medicine. But you can feel a strong uneasiness on both sides of the issue: The conventional medical opinion says that folic acid fortification is a miracle of public health and you shouldn’t scare the public into believing half-truths. The opposing view, well, implies that poor regulations actively poison us through our food.

It’s too soon to jump to conclusions, but the fear of scaring the public with new info is almost always unfounded. We’re smart enough to figure things out for ourselves. If there is true skepticism about the benefits of folic acid, then we need to hear it. Afterall, we’re the ones who are being forced to consume it.

The debate raises more fundamental questions however about medical regulation, the role of government, medical science, and the rights of food consumers. It is somewhat ironic that we scrutinize new prescription medications given to subsets of the population, and yet gloss over widespread regulations such as this one, which asks the entire population to eat a synthetic diet as if they were all expecting babies.

As the health reform debate rages on, expect similar shortcut solutions, which attempt to lower health care costs through such non-conventional interventions. Already we are seeing calls to increase vitamin D and folic acid in our diet, while decreasing other ingredients that medicine deems harmful, at least at the current moment. Such actions need to be scrutinized carefully and at all levels of action, including the chance that fortification will help those who need it most, and that it'll insure that the vitamins and minerals are actually metabolized. Large-scale epidemiological studies need to make sure that negative health correlates to low levels of vitamins and minerals aren't confounded by low consumption of products like orange juice and enriched flour.

In fixing health care, there's a strong push-and-pull between ensuring that patients have the personalized attention they need, and treating everyone the same. The solution however needs to err on the personalized approach, because treating everyone the same is no way to give people what they need. Indeed, the more we try to treat everyone the same – be it by putting us all on the same medical plan, or force-feeding vitamins and minerals – the more unintentional consequences will result.

-KJ

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Media (in order of appearance)

Photo: (1)[Wonder Bread], 02/21/2009, Werklife; (2)Big Brother, 01/03/2008, Ian Geldard; (3)Vitamin water + energy, 05/25/2007, Ryan. Sphere: Related Content

Healthcare: Time, Money, and Details

Capitol Hill is filled with buzz about Obama’s rushed health care proposal, intended to overhaul the current system. But as politicians portray healthcare with broad rhetorical brushstrokes, they continue to overlook a plethora of details that unnecessarily inflate its cost. A less publicized news item from last week was the annannouncement that the FDA will delay their final decision on Ampligen – the leading drug for the treatment of Chronic Fatigue Syndrome (CFS) – until this fall. The FDA announced that the delay was due to staffing problems.

Submitting Ampligen’s application is Hemispherx, a small biotech company that has researched the drug for nearly 3 decades. Like a handful of similar companies, their future solely depends on the FDA’s forthcoming decision. All of the clinical trials are complete. The drug’s application was accepted for review just over a year ago, which would make the FDA’s turnaround time over a year and a half. Judging from Hemispherx’s annual operating costs, the FDA’s delay by itself will cost them a total of approximately $15 million.

The FDA’s mission is largely to protect the public from harmful drugs, however critics demonstrate that their overcautious ways do more harm to the public than good. Their delays have cost the public thousands of more lives than they have saved, along with making them unpopular among most practicing physicians.

Even if you believe in the FDA’s mission, then it is hard to overlook the sheer inefficiency and waste that they introduce to healthcare. Clinical trials for new drugs take about 10 years, but even after all the data is in – as is the case with Ampligen – it often takes up to 1 more year for them to make a final decision. FDA delays are not-too-unexpected, but they have still hit Hemispherx hard.

Following each FDA delay, Hemispherx announced new efforts to raise more cash. Currently they are operating like a bear in hibernation, placed on life-support.

Given the millions of dollars lost due to FDA "staffing issues", one strategy might be to give them more staff. They might have applicants pay directly for these staffing issues, but the FDA already receives hundred of millions of dollars worth of fees; supplemented with more money by Congress, fees from private companies consist of half of their drug approval budget. Why these fees aren't enough to reduce the decision time to under 12-months isn't clear.

But the real problem, as discussed above, is with the structure of the FDA and the responsibilities placed on them. As drugs like Vioxx prove to be more dangerous than people could have guessed, the FDA has taken part of the blame; in response they have received more money and power, but this hasn’t led to marked improvement, accuracy, or efficiency.

Determining the safety of drugs can be particularly tricky, but there is only so much that you can ask for: Did the clinical trials meet their endpoints? Were there side-effects? Is there any reason to believe that there might be additional risks? Even if it takes 10 years of research to answer these quesitons, it should not take an additional year to intrepret the results: Either the end points were met or they weren't; there are side-effects or there aren't; there are reasons to consider additional risks or there aren't. These questions are not black-and-white, but following 10 years of required research (and often more), an additional year to make the decision - supposedly filled with heated internal regulatory debate - is not likely to find anything new.

As with most jobs, the problem lies not so much with the staffing, but with the structure of the organization. The main question is whether their mission – to approve and oversee every single drug (and many foods) on the marketplace – would be feasible, even if they had a large army of scientists at their disposal.

Science, like anything in life, obeys laws of diminishing returns: Beyond a certain threshold, the more you study one particular thing, like a drug, the less return in greater knowledge you'll receive for your efforts. Going back to the Voixx example, how many more years of clinical trials, and how much more power and money granted to the FDA, would have better assured its safety?

The assumption being placed on the FDA is that more research and regulation is better, regardless of the specific types of research and regulation being carried out. This is the same mistake that has been applied to the SEC for years, whose added regulations over the years tends to favor red tape, paper work, and superfluous committee-creating over investigatory manpower.

Currently drugs like Ampligen wander through a maze like patients lost in the healthcare system, knowing where they want to go but not being able to get there. And likewise they incur quite a cost – in the case of Ampligen, an added 18 months and about $15 million, assuming, of course, that the drug is even accepted. On top of decades of research and piles of paperwork, does it really take an additional 18 months and $15 million to judge a drug? The frustrating part is that much of this could be avoided either by cutting back on new drug requirements; somehow lowering the cost to big pharma of drug approval; or at least greasing the FDA's wheels in any manner that would make them more - not less - efficient. As it is, patients along their way are forced to pay for these costs, which are often more attributable to regulatory stuckiness than to added value.

Any improvement in healthcare requires us to look at the factors driving up its cost, rather than further re-distributing costs that already exist. In this environment, small companies like Hemispherx - who can survive 30 years researching just one drug - exist not because of the current healthcare system, but in spite of it. Indeed, in what other private industries is it common for a company to go decades without a product? Such gargantuan human efforts are testament to our need for better healthcare, not for better government intervention.

-KJ

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Note: Long position held in HEB.

Media (in order of appearance)

Photo: (1)Day 20, 1/20/2009, Richard; (2)Ampligen PR; (3)Healthcare, hospital, doctor, 04/22/2009, Anoto Group; (4) corridor, 04/10/2005, sumit. Sphere: Related Content

The Future of the Economy

The untold story of the financial crisis is the transition from manufacturing to services. This won’t mean the death of the economy – as some skeptics proclaim - and it shouldn’t even come as a surprise.

Historical View

To gain some perspective, the Great Depression had a similar underlying theme as the country transitioned from farming to manufacturing. Agricultural products were considered tangible necessitates; the rugged American farmer was seen as a cornerstone of the economy; and, it was argued, the country’s best interest lay in keeping the farmer alive. Supporting the farmer was considered patriotic – the same sort of pathos which, ironically, we currently see in the manufacturing sector.

The sequence of events was remarkably similar to that of America’s car companies – a former leading industry begins to falter during an economic boom, depression hits, and it suddenly implodes.

Looking back, we can at least feel some comfort that, as useless as our current attempts to bail out the Big 3 have been, they pale in comparison to the damage caused by trying to salvage the farming industry. Leading the way was the Federal Farm Board (FFB), which was setup before the crash.

The FFB began with $500 million dollars dedicated for loans to farmers. After the Great Crash, prices for agricultural products, like most consumer goods, took a nose-dive. Farmers complained that they couldn’t turn a profit. The FFB was then placed in the awkward position of trying to keep farmers alive while raising the prices of their goods. In order to accomplish the latter, they tried to limit farmers’ output by buying and storing huge quantities of agriculture goods, encouraging farmers not to farm, and going so far as to encourage the destruction of farmland. In 1930 it even tried to raise cotton prices by seizing 1.25 million bales of cotton for 1 year; this had no effect on the price.

Tangibility of Services

I imagine that before the Great Depression, one could make the same argument against the foreseeable manufacturing revolution as one can make today against the upcoming service-based economy: Services are non-essential and an economy cannot be built on such intangibles.

On the contrary, the only tangibles in any economy are supply and demand. This holds regardless of how concrete a given product is.

Part of the confusion has to do with what, exactly, we mean by services. At times its distinction from manufacturing is blurry. People are also quick to point to failing service sectors – advertising can be lucrative, but its success is strongly tied to that of the overall economy; journalism, another quintessentially American industry, has received a heavy blow; and IT support is overly prone to outsourcing.

These smaller service sectors may reveal some clues, but the central veins of a service-based economy – as key today as auto making became after the Great Depression – are healthcare and education. As intangible as services may seem, the modern American cannot live without these 2 services. They are the bread-and-butter of a service economy.

Healthcare & Education

The rising cost of healthcare and education is heavily debated. Regardless of where you side, it can be agreed upon that a large portion of the cost resides in systematic inefficiencies linked to public policy. At the same time, the mere fact that Americans continue to pay such high costs for healthcare and education is testament to their growing importance.

The importance of these services is forgotten when pundits speak only of the rising “costs” of healthcare and education, although it is forgotten for a good reason. In the final quarter of 2007, for instance, Apple reported revenues of $3.4 billion from iPod sales; and yet you wouldn’t say that during those 3 months the iPod cost the nation $3.4 billion. Yet by means of contrast, what remains alarming about healthcare and education is that, however you look at it, we haven't found a way to let them thrive. Some sectors do flourish, but on the whole the industries really do “cost” the economy quite a lot of money.

Our current problem is that we haven’t figured out a way to integrate these areas into the economy. The question is not “how do we minimize the costs health care and education upon the economy?”, it’s “how do we make them a part of the economy?” Lots of government regulation and subsidies, I suspect, aren’t the answer. But either way the debate is too focused on minimizing their negative impact.

The success of the automobile industry hinged on not only better cars, but on cheaper cars as well – this was the famous recipe to Ford’s success, that he was able to tap an economy of scale. In contrast, healthcare and education in the US are, by any measure, diseconomies of scale. And yet as national employment continues to decline - with manufacturing taking the biggest hit - service-based employment is growing substantially, and projections suggest that it will continue to accelerate with healthcare and education leading the way. Looking forward, it’s hard to imagine a successful future economy without these 2 industries on board.

-KJ

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Media (in order of appearance)

Photos: (1)CROP CIRCLE MAKER - Matthew Williams, 06/07/2007, Mark Berry; (2)USA 2005 (October 1st) Nevada, Reno, National Automobile Museum, 02/25/2008, by Paraflyer; (3)The Causes of the Great Depression/FDR Memorial Site, 09/15/2008, Tony the Misfit; (4)2008AUG121654, 08/12/2009, bootload; (5)Gesundheit, 04/01/2009, by Gunnar Ries; (6)iPod Family, 02/09/2007, by CokeeOrg; (7)Class, 12/04/2007, by Nik Lee. Sphere: Related Content

Price of Health Care

I voted for McCain. There, the cat’s out of the box. I was undecided for a while, interested but not very passionate either way. I recently started Thomas Sowell’s epic on economics (Basic Economics), and the opening discussion about prices tilted me towards McCain.

His Basic Economics is built upon price – as in, the price that any item costs. Prices pack an incredible amount of info: It includes not only the resources - both in material and labor – that go into a product, but the alternative uses for those resources as well. Milk for example, can be used in many ways – and if the price of milk goes up, then so does the price of everything that has milk. This goes for labor too. If a new industry requires workers from an old one, then demand for the workers increases as well. It’s an intense web, you might not know it, but it's all intimately interconnected.





This makes sense, but in another way it’s completely counterintuitive. Day-to-day, price doesn’t inherently seem to be connected with an item’s value. This is because we use our own subjective value. I’m going to want ice cream regardless of the price – if it goes down, I think, “more for me!”, not “It seems like some of the alternative uses of milk have been curbed this year, so the inherent value of ice cream is temporarily down”.

Prices are so naturally informative that their import can best be seen when they’re artificially manipulated. Sowell cites an example from communist Russia, where all prices were government-set:

Two Soviet economists, Nikolai Shmelev and Vladmir Popov, described a situation in which their government raised the price it would pay for moleskins, leading hunters to get and sell more of them: State purchases increased, and now all the distribution centers are filled with these pelts. Industry is unable to use them all, and they often rot in warehouses before they can be processed. The Ministry of Light Industry has already requested Goskomstein twice to lower purchasing prices, but ‘the question has not been decided yet’. And this is not surprising. Its members are too busy to decide. They have no time: besides setting prices on those pelts, they have to keep track of another 24 million prices.

It’s tempting to think “well, that’s Soviet Russia, it’s completely different from us”, after all the situation there was so depressing, but setting prices is not a far cry from Obama’s call for universal health care.

This harks back to how counterintuitive prices are. The liberal perspective is that, after all, health care is too expensive for most people, so we need to lower the price to make it affordable. But really this is the same logic that says that printing more money is good for the economy: After all, if we all had more money, we’d be able to buy more things.

The real question is “Why is health care so expensive?”, and by expensive, I mean not only its superficial price but the inherent value in the material and labor underlying health care. For some reason, this question is scarcely asked. The answers lie in basic economic principles.
It starts with medical education. Medical schools are expensive and selective. Doctors that do graduate find themselves in high demand, and it’s suiting in proportion to all the time and money spent on their education. This, I suspect, is partly why medicine has developed many specialties: If all trained doctors became general practitioners, then they’d make significantly less money, and might not recover their educational costs.

Can we manipulate medical training? Can we lower the standards to produce more doctors? Or can the government make training more available or bear more of the cost? The answer is not clear, but either way, this is the place to start because on the most fundamental level this is what’s driving up prices. Personally I suspect that standards of training can be lowered, such that medical school might come to resemble law school.

I hear already the doctors groaning that one’s health should not be taken as precariously as law. This is the argument of authority, which we'll return to yet again. And law is complicated too, yet somehow we find ourselves with enough lawyers.

Either way, this is the place for any creative government manipulations, not the at the end-user patient level, where the inherent value of health care – regardless of any superimposed price – has already been determined.

The second way to address the price of health care is to inspect current regulations that unintentionally affect price. Most relevant is drug-policy. Our top-down drug regulations are rotten from the bottom-up (take a moment), as they’re predicated on governmental concerns about what someone puts in their blood. (The entire annual budget for the war on drugs could send almost 3,500 students to med school).

The FDA are overburdened and inefficient, but even in a perfect world their standards would still send drug prices skyrocketing. The risk of lowering drug standards is offset by the benefits. But you can’t have your cake and eat it too: You can’t require drug companies to spend years, often decades, to develop drugs and then keep the price low. And right now we just have our cake, as drug companies spend forever getting drugs approved, and their value is high as well.

The prescription system increases the end-cost of drugs even more by requiring superfluous paperwork from doctors and pharmacists.

Economics is a science of consequences, ripple-effects. You can learn a lot about it by watching The Wire, one of my favorite shows, because it’s all about delving into consequences, and displaying them in stark and gritty detail. Even though the show’s liberal, with socialist tinges, it’s a great lesson in economics.

I’ll end with a personal anecdote about the prescription system and consequences.

For some time, I was on an extended course of antibiotics. After a few months, I started noticing a chalky white substance on my tongue, it was a yeast infection. My doctor had warned me about this ahead of time, and through his convenient online system I was able to request prescription Clotrimazole – oral tabs that inhibit fungal growth. However, this was a Thursday, meaning that it wouldn’t be faxed over until Monday. In the meanwhile, I felt like I had to address this somehow. Yeast, just like any indoor fungi, needs to be nipped in the bud early before it has a chance to spread. I went over to the local CVS, but the pharmacists told me that there weren’t any over-the-counter meds, I’d just have to wait for the prescription to arrive.

I’m not the sort of person who likes to wait for others to do things. I took to browsing the aisles at CVS. Oral clotrimazole, mind you, is one of the most harmless drugs out there. Side effects are rare, and even the listed ones – which are normally over cautious – are pretty benign. But here I find myself empty-handed with a yeast infection, having to wait 4 days for a fax, under the ugly florescent lighting of a CVS, and I came across Clotrimazole Topical Foot Cream. I stopped and thought for a minute and turned the box around. Clearly written: “Do not apply this medication in the eyes, nose, mouth, or vagina.” I chuckled and looked at the ingredients. I thought some more.

The above health care recommendations would be next to impossible to tinker with. The medical profession profits from keeping training prices high and doctor supply low. The FDA employs over $2 billion worth of jobs. Drug companies – although screwed in one sense by the FDA – benefit from prescription practices, which allow them to charge more. These factors all drive up the cost, but in an artificial manner and often justified as yet more ways to protect the public from themselves.

It all goes back to how counterintuitive concept of price is, which unfortunately is manifested in a fatal flaw of democracy that when things are wrong we feel the need to do stuff, even if the problems are originally due to stuff we did in response to past problems. You'll remember a congressmen who gets money for a library named after him sooner than one who sweated hard to balance the budget. In this case, we’re trying to do stuff with the outward price, which is already elevated from stuff we did in response to past problems.

The counter argument is almost always one of authority: “Health is too important to leave it up to the whim of patients”, underscored by the attitude from medical professionals, “You wouldn’t know, you’re not a doctor, but I know.” But this falls flat when you hear it from so many different angles and in all sorts of industries (like the automobile industry trying to say that it’s as important as the credit industry & that it needs it's own bailout). Flaws in such expert arguments are compounded by their narrow point of view: An expert physician probably knows how important medical care is, but does he know how important it is relative to, say, the automobile or financial industry? Or relative to everything else that you spend your money on? Or relative to the American economy as a whole? The true importance of most public versus private issues is determined not by individual experts, but by associated prices.

-KJ
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Media (in order of appearance)

Photo: (1) Thomas Sowell; (2) Got Milk?; (3) three days late -- happy birthday di!, 03/07/2006, by chocolate monster mel; (4) Soviet Revolutionaries, 02/26/2006, by Dunechaser; (5) Joseph B. Martin Conference Center at Harvard Medical School, 10/27/2008, by Cliff1066; (6) FDAlogo; (7) Paperwork, 07/05/2007, in neilsphotoalbum; (8) Japanese Rock Garden, 04/02/2008, by vgm8383; (9) too many choices, 01/06/2008, by D'Arcy Norman; (10) Eye Doctor, 09/21/2007, by Samuel Duhamel

Video: (1) Mogwai: Hunted By A Freak, video from MountCyanide, music by the band Mogwai, from the album Happy Songs for Happy People, released 07/17/2003

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Upcoming ideas

• Other effects of over-regulation in combination w/
  
• Medical & academic elitism
• Simplicity versus complexity, both have roles
  
• Nothing in the world is complex, we simply perceive various things as such

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