Friday, December 18, 2020

How Economics Helped End a Pandemic


Last March Dr. Fauci explained to a Senate committee that “a vaccine … will take at least a year or year and a half” until it is administered to the general public. In his next testimony, he added, “I don’t give advice about economic things.”  If Dr. Fauci had paid more attention to economics, at least what had reached his own inbox in the prior year via the White House Staff Secretary, he would have understood how different vaccine development during a pandemic would be, and should be, from that in normal times.


Dr. Fauci was refering to the lengthy process that the Food and Drug Administration (FDA) has for approving drugs, vaccines, and medical devices for use in the United States.  Long ago a wide range of economists had concluded that the FDA process was too cumbersome.  In 1973, the University of Chicago’s Sam Peltzman concluded that the FDA cure was worse than the disease, “consumer losses from purchases of ineffective drugs or hastily-marketed unsafe drugs appear to have been trivial compared to their gains from innovation” delayed or forgone entirely due to the costs of getting FDA approval.


M.I.T. professor Peter Temin said that there should be “less [FDA] surveillance at the premarket level” because the approval delays were too long.  Even 25 years ago, as Emory professor Paul Rubin put it, scholars had “long been aware that the agency causes unnecessary deaths and suffering by” its “inexcusable delays in approval.”


During those 25 years, Congress took some steps to reduce approval delays, especially in 1997.  However, the FDA “steadily disregarded many of the law’s provisions.”  The tide started to change in the Trump administration, where there were at least some staff who suspected that government regulation is part of the problem rather than the solution.


Early battles centered on President Trump’s campaign promise to lower prescription-drug prices.  He appointed FDA commissioner Scott Gottlieb, who had been critical of FDA delays.  Trump’s economic team (where I participated as part of the Council of Economic Advisers or “CEA”) predicted that deregulation would reduce drug prices because reduced FDA barriers would result in more new drugs and more manufacturers of existing drugs competing for consumer dollars.  On the other side was Health and Human Services (HHS) Secretary Alex M. Azar II, who proposed a “drug-pricing blueprint” that would add regulations on everything from television advertisements to business-to-business price controls.


As Gottlieb’s boss, Secretary Azar had an advantage in that he could exclude Dr. Gottlieb from Oval Office meetings and potentially prevent the president from hearing how well the deregulatory approach was going.  But Larry Kudlow and others invited Dr. Gottlieb anyway and, more important, the data were on Dr. Gottlieb’s side.


CEA got the first progress report on January 10, 2019, with the confidential advance release of the Consumer Price Index (CPI) report for December 2018.  It showed that 2018 was the first year since 1972 that retail prescription-drug prices actually fell (even while consumer prices generally were increasing).  We composed a message to be posted on the President’s twitter account the next day.  But this message had to be approved by HHS, which was loathe to release something so contrary to its perceived “need for regulatory action” in the face of [purported] “prices of existing drugs [that] have been rising in the United States much more rapidly than warranted by inflation or costs.”


I convinced the President’s communications team that the CPI is reliable and is telling us something important.  The President would brag about the result in everything from impromptu press briefings to his State of the Union address.  Being results-oriented rather than ideological, he was noticing what administrative manuevers could remove FDA barriers to consumer welfare.


Although COVID-19 would not arrive in the U.S. for two more years, the National Security Council’s biodefense team asked the CEA to look at the economics of vaccine innovation during pandemics.  CEA concluded that “improving the speed of vaccine production is more important for decreasing the number of infections than improving vaccine efficacy” and emphasized the need for large-scale manufacturing and the possible advantages of public-private partnerships.


The CEA vaccine report prompted an executive order, also before the pandemic, noting that “viruses emerge from animals … that can spread efficiently and have sustained transmission among humans.”  President Trump concluded that “vaccination is the most effective defense.”  As two of Trump former senior staff members put it, “when COVID-19 emerged, the White House was ready and expeditiously applied the report's deregulatory and fiscal lessons to streamline FDA approval for vaccines and their parallel manufacturing on a large scale.” 


I was in the Oval Office with the president and his economic team in February (when COVID-19 cases were beginning to spread).  His staff was worried that the FDA would not be interested in removing any more approval barriers.  But the President was confident, telling us that “I’ve done it before and will do it again … bring the FDA management in here.”  President Trump initiated his Operation Warp speed, led by HHS, to give many private companies incentives for “speed and scale” of vaccine production and to give all companies the opportunity for streamlined FDA approval.


COVID-19 vaccines are now being administered to the general public at least six months earlier than Dr. Fauci expected.  The economists were correct that accelerating medical innovation is both possible and worth trillions of dollars to Americans.



Saturday, November 7, 2020

Look at Article II of the Constitution before Censoring Trump

Article II, Section 1 of the U.S. Constitution says [emphasis added], 

Each state shall appoint, in such manner as the Legislature thereof may direct, a number of electors, equal to the whole number of Senators and Representatives to which the State may be entitled in the Congress....
I am not a lawyer, let alone Constitutional scholar.  I welcome such scholars to engage and clarify what follows (suspecting that most of these scholars are currently retained by either Rs or Ds and therefore will not comment outside of legal proceedings).

My point in what follows is about free expression of reasonable ideas, which is a set of ideas that includes elements that may be ultimately rejected by the U.S. Supreme Court as valid legal arguments.  I am not using the term "reasonable" as a legal opinion because, to repeat, that is not my profession.

A reasonable assertion is that officials in the executive branch of the states, such as a Secretary of State certifying elections, are not part of "the Legislature."  On this premise, a reasonable person could refer to any meaningful election procedure established by the executive branch without the approval of the state legislature as "illegal."  Again, because passions are high, I must repeat that this is not a legal conclusion but a statement of what a reasonable person could say.

This reasonable statement could have been, and I suspect was, uttered before election day.  Furthermore, this reasonable person could have publicly directed Trump supporters not to participate in those procedures and instead participate in procedures that HAD been established by state legislatures, such as in-person voting and absentee voting (i.e., ballots specifically requested by voters, as distinct from "mail-in" ballots).

Now that Election Day has passed, we have enough evidence to reasonably assert, if not prove, that Trump got more in-person and absentee votes than Biden did in the swing states.  At the same time, it looks like Trump lost most of the swing states in terms of in-person + absentee + mailin.

Now let's look at four recent events in chronological order:

(1) Two days after the election, Trump claimed in a press conference that he won on "legal" votes.

(2) Trump said that the Supreme Court would likely be considering his argument.

(3)  Trump's legal-votes claim was immediately described by "impartial media" as "a lie without evidence" and reeking of fascism that must be condemned by all.  These impartial media further asserted that Trump had no path to the Supreme Court.

(4) Discussion or interpretation of Trump's legal theory was censored from Facebook, Twitter, etc., if it had any sympathy for Trump's argument.

I am disturbed by (3) and (4).  All people should be allowed to make their case.  Not everyone can be correct, which is why we have a court system.  The Supreme Court may reject Trump's legal theory, but until then (at least) he should be allowed to articulate it in public.

By no means is it acceptable for members of the American Economic Association, who are not legal experts, to require me or anybody else without legal expertise to "condemn" Trump's assertion of what is "legal" even before it has its day in court.  (Yes they are doing so; all, even nonexperts, who do not condemn are purportedly "accomplices.").

I understand that the President is not a random person and respect (not the same as agree with) the opinion that there "should" be tighter bounds on his speech than "free expression."  But (1) looks like a reasonable (not the same as correct) assertion, although it might have been better communication for him to explain what I have explained here rather than packing so much into the single word "legal."  (political communications are also not my profession).

Let me quote from some legal experts writing on this last month,

Kavanaugh endorsed in a footnote Chief Justice William Rehnquist’s view in Bush v. Gore that state courts are limited in their ability to “rewrite state election laws for federal elections” because Article II states that rules in presidential elections are to be established by state legislatures.

Might state executive branch officials also be so limited?  This is a reasonable question and it is premature to condemn Trump or anyone else for asking it.  Ironically, Democrats are asking exactly the same question about the U.S. Post Office.

[Although it is hardly relevant to the free-expression question, let me add that, like many of Trump's politically incorrect predictions, (2) will prove to be correct.  His argument (1) will be compelling to many nonexperts and therefore it is desirable for the Supreme Court to weigh in].

[I also support the free expression of "unreasonable" ideas, but that is not relevant here].

Wednesday, November 4, 2020

Canaries in the Coal Mine

Although we still do not know the winner of the electoral college, it is clear that the polls were systematically wrong in the swing states and several others.  Here is a recap, with links, of what we knew in advance but few dared discuss openly.


Election forecasting became an economics-free zone


I wrote about this last week:


(1) Better information-aggregation methods were showing less Biden lead and sometimes a Trump lead.


(2) The incentives for individuals to truthfully participate in polls were skewed relative to a neutral situation, and relative to 2016.  Incentives matter!


(3) The costs to individuals of participating in the election are different during a pandemic.  During this pandemic, perceptions of the new costs were correlated with party affiliation.


The forecasters were dismissing these economic insights.  That they used foul language and straw men rather than real argument and measurement was a telltale sign to somebody (me) who is an expert on economics but not on election forecasting.  There were exceptions such as Trafalgar – they cited some of the effects above and made better forecasts – but of course they were maligned for being different from the crowd.



Forecast errors were correlated over time, questioning their rationality


The June 2016 Brexit vote was an early notable case where educated people in big cities had no clue what their fellow citizens were thinking and made little effort to learn about it.  The British polls had been closed for hours before currency markets absorbed what happened.


The Obama Administration and most other Democrats were very slow to understand what happened around Brexit.   I tell the story in my book of “a conversation between a Laotian woman and Ben Rhodes (Obama’s speechwriter). Citing the British populist victory, the woman expects that candidate Trump will win. Mr. Rhodes confidently assures her that Mrs. Clinton will be the new president.”  People living on the other side of the planet knew better what was happening in the 2016 election than the “30 people setting the direction for the entire U.S. government.”


Back to British populism, polls indicated that there was no way that their leader Boris Johnson could form a majority coalition in the December 2019 election.  In reality, Mr. Johnson was getting most of the votes from areas of Britain that had long been solidly with his opponents.  No electoral victory in Britain since Thatcher had been as overwhelming.


Still in 2020 the conventional wisdom was that the populists would not surprise us again.  Any surprises would be purely random.



Companies with enough data to know acted like small things mattered


Twitter and Facebook have products that have overwhelmingly passed the market test, and they are free of charge!  Except that we pay with our personal data.  They know a lot about us as individuals and, especially, as a group.


In the weeks leading up to the election, these two companies tried to suppress the viewpoints of those on the side of our populist president, ranging from a Stanford professor to one of the biggest newspapers.  Why would Twitter particularly drive millions of consumers to its competitor?  Likely the company thought that the election was close enough that even small news stories might matter.



The Rallies


Trump was holding up to five massive rallies per day.  Biden rarely came out of the house and then to tiny crowds.  This difference was a signal from both sides of the market.  On the voter side, this was a more stark difference than in 2016.  On the campaign side, given that with 20-years-ago technology the Bush campaign knew that Florida was close and to have their candidate there at the end, we can assume that the Trump campaign knew that it was close in the places where Trump visited at the end (AZ, FL, MI, MN, NC, PA, WI).