To describe drug pricing as free market is simply ignorance

Suzanne Moore has a very powerful piece about the meningitis B vaccine and its pricing. Sadly, the core of her argument is also entirely wrong:

Second, and maybe not so emotional, is that this is actually the market in all its gloriously free form. It is a choice. The market can charge what it likes for vaccinations against meningitis, as it will do for Ebola or malaria if these are developed. Cancer drugs, retrovirals, the new anti-rheumotoids: they are all expensive. There is something utterly immoral about the market holding not just the NHS to ransom, but the sick and the suffering around the globe. These untramelled market forces must be challenged.

There is nothing remotely free market about the pricing of drugs. For those who develop such drugs are granted a legal monopoly upon them for 20 years. We call this monopoly a "patent" and legal monopolies are not part of that "free market". Indeed, the existence of such legal monopolies such as patents and copyrights is a flat out admission that the free market, the market unadorned, does not deal well or cope with every problem. The art is in working out when this is so and what should be done at that point.

The most obvious two examples of when the unadorned market does not cope well are pollution and public goods. Yes, Coase pointed out when there are indeed private solutions to pollution: but equally his analysis pointed out when they will not work. Public goods are, by definition, non-rivalrous and non-excludable. Knowledge is an obvious example. That once knowledge has been attained we cannot stop someone from using it, nor does their use diminish the amount other can use, poses an economic problem. It means that it's terribly difficult to make a profit from having uncovered that knowledge.

We're also pretty sure that people respond to incentives: thus, less profit from uncovering knowledge will lead to less knowledge being uncovered. And we like knowledge being uncovered, it's one of the things that makes us all generally richer over time. So, we deliberately construct these time limited monopolies in order that people who uncover knowledge can profit and thus have the incentive to do that grunt work to uncover it.

This is not, by any means at all, a free market. It's that flat out admission that the free market does not work in all circumstances.

And this is, of course, what happens in drug development. Getting a new vaccine through testing (please note, this is not an argument about the original research, whether that was government funded or not) costs in the $300 million to $500 million range. Someone, somewhere, has to spend that much. We can indeed do this in different ways, none of them will be free market ways because of that simple public goods problem. Once we know how to make the vaccine it is terribly cheap to reproduce. Almost all of the cost is in working out how to make it.

And thus we come to the argument about how much should that monopoly holder be able to charge for access to that new drug. We can't just say "a reasonable return on manufacturing costs" because that is ignoring the very problem that led to the construction of the legal monopoly of the patent in the first place. We also can't say that they "deserve" some amount of money, possibly equal to the human misery and suffering that won't happen as a result of the roll out of the vaccine. There is no "deserve" here. Nor can we say that bugger them, that suffering is so great that we'll just nick their $500 million. For what we're actually trying to achieve is to leave people with the incentives to go and spend the next $500 million on developing the next vaccine.

We are not weighing in the balance the amount the capitalist b'stards are trying to charge against the joys of wiping out meningitis B. We are, in these price negotiations, trying to work out how much profit we let them make on this vaccine so as to incentivise the development of all the future vaccines that might ever be developed. This is a rather difficult question.

And it really is a difficult question. Which is, of course, why we really do try to use markets where they work even acceptably if not perfectly. Simply because using non-market methods is so damn difficult.

Unite's interesting little report on NHS privatisation and tax

Unite, the union, has released a small little reportette on the tax positions of those firms that either have or are bidding for contracts to deliver health care services to the NHS. The so called "privatisation" of the NHS. Apparently it would be very bad if people who provided these services did not pay lots of tax. You know, in the manner that the NHS itself pays lots of tax. Given that the report is written by Richard Murphy we know that there's going to be logical problems contained within it. It's just that we need to work out which mistake he's made this time rather than wonder whether there is one. and here's quite a doozy:

If a willingness to pay the right amount of tax, at the right rate, at the right time and in the right place is the best indication that there is of corporate social responsibility then there is, unfortunately, little evidence from the ten companies surveyed to produce this report that many of the suppliers of private services to the NHS are committed to this ideal.

Admittedly, this conclusion is not helped by the fact that eight of these ten companies are at present making losses, and so pay little or no tax at present, and may not do so for some time to come.

The error, of course, being failing to consider the implications of those providers making losses. Those providers are expending more resources to deliver health care than the NHS pays for delivering said health care. This must be so, this is the source of those losses. That is, the NHS is getting more health care than it is paying for: the taxpayer is getting more health care than it is paying for.

Quite how this is something we should object to is unknown. But then this is a feature of Murphy reports, the assumption that we're supposed to be outraged at the taxpayer getting a good deal.

Wilkinson and Pickett are, yes, still wrong

This would simply be laughable if it weren't for the fact that it's so dangerous. Richard Wilkinson and Kate Pickett are, once again, telling us that it's all inequality that fuels our woes. And yet they've entirely misunderstood the statistic that they're using to prove that this is so. And to add to the embarrassement Wilkinson at least is supposed to be a demographer, meaning that he really is supposed to know how badly he's cocking things up here. Yes, we're being rather fierce here but rightly so:

New statistics from the ONS have revealed that women in the most deprived areas of England can expect to have 19 fewer years of healthy life than those in the most advantaged areas. For men, the figure isn’t much better, with a gap of over 18 years. To put that into perspective, those born in the poorest parts of England can now expect to live the same, or fewer, healthy years as someone born in war-torn Liberia, Ethiopia or Rwanda. And a third of people in England won’t reach 60 in good health.

Those statistics are here. And the first part of the paragraph is correct. Ages at death in poorer areas, health before death in poorer areas, are lower/worse than they are in richer areas.

But this has absolutely nothing at all to do with life expectancy at time of birth. Simply because no one at all is even attempting to measure life expectancy at birth. What people are measuring is age at death, health before death, in certain areas.

The difference is, and you may have noticed this, people actually move around during their lives. Further, it is not (necessarily) true that income inequality leads to health inequality. For it is also true, as we've pointed out many a time before, that health inequality can and will lead to income inequality. That ghastly disease that cripples someone in their 40s is going to have an impact on their income during the remainder of their life. We cannot therefore look at income inequality and claim that it causes health inequality. Simply because there are two processes at work.

Further, we cannot look at lifespans in an area and insist that these reflect the life chances of those born in that area. Take, as an example, a retirement town like Bournemouth (say, any other will do). People often retire there at, say, 65. Can we then look at average lifespan in Bournemouth and correlate it to that of someone born in Bournemouth? No, of course we can't: for the average lifespan in Bournemouth is going to be boosted by including large numbers of people who only impact the numbers after they've survived to age 65. And, obviously, those rich enough to be able to move for their retirement.

This migration over lifetimes will lead to selection: the richer will go to richer areas (if nothing else on the grounds that they can afford the property prices) and the poorer will go to poorer areas. At least part of what is being measured is therefore the effects of this selection, not the life chances of those born in these areas. As such we simply cannot accept the conclusions they are making from this data.

And as up at the top, Wilkinson at least is supposed to be a demographer and he really is supposed to know all of this. It astonishes that they keep pushing this obviously incorrect line.

These statistics are compiled on the basis of LSOAs, lower super output areas. There's some 32,844 of these in England. That is, each LSOA is a unit of roughly 1,500 people give or take a bit. So, how many people die in the same 1,500 people strong grouping that they are born in? The geographical area inhabited by that same 1,500 people? Moving three streets over on marriage would take you out of such a small area.

Quite, somewhere between not very many and none these days. These statistics are simply valueless in trying to prove what Wilkinson and Pickett want to torture them into showing.

Polly Toynbee explains why the NHS should be privatised

Not, admittedly, what we would expect to hear from Polly but the case she makes for the privatisation of the NHS is logically perfect:

Ration life! Limit the value of a good year of human life to £13,000 to spend on any one drug, says a report from Prof Karl Claxton of York University. Spend more, and other patients die for lack of funds.

That’s the crunch point in NHS funding, according to health economists at York University, inventors of the original notion of measuring health spending by Qaly – a quality adjusted life year. If all health spending was put through this rigorous analysis of ensuring every pound bought the best value, there would be a remarkable shift in NHS priorities. Mental health would score highest, not lowest, in spending, as each pound can buy the most effective diminution of intense suffering. Suicides are rising, most among young men in deprived areas – deaths that could be preventable at reasonably low cost. Instead, a minor operation may take priority, as headline waiting time targets matter more politically.

During a period of the steepest cuts per capita the NHS has ever known, the government has weakened attempts to ration rationally.

Politics, being politics, means that the NHS is being run irrationally. The solution is therefore to remove the NHS from being run by politics. That part of national life which is not run by politics is known as "the private sector".

Thus the NHS should be privatised. QED.

And do remember, it's not us telling you this, that's Polly Toynbee saying it.

We do sometimes wonder about the boffins

One of the endearing things about the very British idea of a boffin is that they are assumed to be entirely indifferent to the real world. What matters is the theoretical world going on inside their heads, not the more mundane one in which we all pass our lives. This does, of course, lead to some hilarity when that theory is applied to said real world. Perhaps our favourite example of this was when the new economics foundation decided to take their principles of what constituted the good life and rank countries so as to decide upon where was the very bestest place to live. Their answer was Vanuatu (subsequent versions of the report changed the ranking method so as to produce a less embarrassing result). The best society on the planet was one of Stone Age tribesmen, wearing penis sheaths, who worship the Duke of Edinburgh as a Living God. This rather startling result does of course tell us a great deal about the theories the nef uses to evaluate the world.

We've a close contender for this in The Lancet Global Health:

Belgians are known for their chocolate and waffles, while Hungarians are famous for their rich goulash.

But now, a global study has revealed they are among the nations with the worst diets in the world.

Meanwhile, Chad and Sierra Leone, in Africa, have the best diets, consuming the most fruit, vegetables, nuts and wholegrains.

It will be interesting to see what "best diet" here means.

As part of the study, a team of international researchers analysed data on the consumption of 17 key food items and nutrients related to obesity and major diseases like heart disease, stroke, type 2 diabetes, and diet-related cancers.

They looked at the changes in diets between 1990 and 2010 in countries around the world.

They looked at three different diet patterns and gave each a score.

The first was based on 10 healthy food items: fruit, vegetables, beans and legumes, nuts and seeds, whole grains, milk, total polyunsaturated fatty acids, fish, omega-3s, and dietary fibre.

The second was an unfavourable diet based on seven unhealthy items: unprocessed meats, processed meats, sugar-sweetened drinks, saturated fat, trans fat, dietary cholesterol, and salt.

The third was an overall diet pattern based on all 17 food groups.

Hmm. So, by this ranking system the top five countries, the countries with the "best" diets are Chad, Sierra Leone, Mali, Gambia and Uganda. And the five with the "worst" diets are Armenia, Hungary, Belgium, Czech Republic and Kazakhstan.

Average lifespans in our best diet countries are, respectively, 51, 46, 51, 59, 56. For the worst diets, 74, 75, 81, 78, 68.

Meaning that whatever criteria our boffins are using for best and worst diet it seems to be an entirely theoretical one, existing in their heads not this reality we inhabit. For at the very least there's not even a correlation between their idea of better diet and longer lifespan. Which, we would all rather assume, would be a useful definition of "better" in relation to diet, no?

We are reminded of the New Yorker cartoon with one caveman saying to another: "If all our food is free range and organic then why are we all dead by 30?"

Keep Politicians out of the NHS

In the run-up to the election, politicians are trying to out-bribe us with our own money to pay for escalating NHS expectations. Democracy has a dark side. Doctors are telling politicians to: “stop messing with NHS to win votes.” (The Times, 17th February, p.15). Demand will always outstrip capacity for a free good such as health. The questions are simply two: how much money should be allocated to the NHS and how should those resources be best managed to maximise welfare?  The former question is essentially political but the latter should not be. The budget should be set annually and not agonised over every day.

As every government IT project demonstrates, government does not do management well. One can blame either politicians or civil servants but it is the combination that is fatal. Apparently the present Secretary of State for Health assembles his entire team every Monday morning to micro-manage NHS issues in Darlington, Taunton or wherever. Or rather to attempt to micro-manage. This may improve media coverage but it builds confusion and disheartenment throughout the NHS.

All the best-run large businesses know that those at the top should lead, not manage. The first level of management should be empowered to deal with the micro-stuff and thereafter the next level of management should deal with matters the lower level cannot sensibly address. Because the NHS is so very large, that lesson is the more important.

How can politicians be removed from NHS management? Simple. We have a relatively new, well experienced, NHS England Chief Executive. He seems excellent and a great improvement on his predecessor. NHS England and the other national NHSs should be converted into public corporations, like the BBC, i.e. a stand alone operations funded and responsible to government but managed, day to day, independently. Whether to close, say, a cottage hospital would be a matter for NHS England. Politicians will still, rightly, lobby but they should not be making the decision.

Our political leaders should lead, not second guess local NHS doctors and managers. In addition to setting the budget, politicians should agree the budget and the strategy, i.e. what, overall, we should expect for our money. Then they should get out of the operating theatre.

A neat solution to the vaccine problem

A bit of free riding is inevitable in a free society. But sometimes you get so much that it ruins things for everyone. To stop the spread of infectious diseases, you need a certain number of the 'herd' to be immune to protect unvaccinated people from the disease's spread. In some parts of the US, after years of (baseless) scaremongering about the MMR vaccine against measles, mumps and rubella, so many parents have now chosen not to vaccinate their children that this herd immunity no longer exists. Until recently they were able to free ride on vaccinated children and avoid the disease, but now measles is staging a comeback.

If it were only the children of these parents who were at risk, we might judge that risking their lives was a price worth paying for parental autonomy, depending on how lethal the disease was. But some children (and adults) cannot be vaccinated for medical reasons or because they are too young, so there is a clear external cost to others.

Because of that, depending on the lethalness of the disease, there is a case for government intervention, but it would still be nice to minimise coercion if possible. KCL academic Nick Cowen suggested one elegant way of doing that:

Modest proposal: pay parents of new borns about £2,000 ($3,000) on completion of all vaccines on a standard schedule, or on submission of a medical exemption certificate (just to be fair to children with genuine vulnerabilities to vaccines).

That should get everyone enrolled apart from the truly rich and stupid, and bring herd immunity (the public good we are looking for) up to scratch. If that doesn't do it, double it. It functions as a good excuse to channel more money to families with young children - think of it as an upfront capital grant. The distribution is so broad that it will have few dead weight losses.

I imagine this would probably work, and it avoids having to put anyone in jail or take anyone's children away from them.

The ethics and practice of blood donation

We've one of those lovely Guardian discussions over the morality of commercial practices. You can guess the tone just from the headline:

Blood money: is it wrong to pay donors?

And we of course observe the comments section filling up with outraged screams that of course it's morally wrong.

Which isn't actually the point that should be under discussion. What we'd really like to know is whether paid blood donation is efficient. And the answer there is that no, it's not really. When offered a choice those who purchase blood place a higher price on blood that has been donated rather than that which has come from paid donors. Such pricing is because donations do tend to be og higher quality. So, if we could fulfill our requirements for blood and blood products purely from donations we would, by preference, do so.

But we can't so fill our preferences. So, for blood products specifically in the UK, we purchase from paid donors in other countries. Shrug. It's either that or simply don't offer the treatment and it's hardly moral to deny treatment because of some squeamishness that cash was involved in the process.

The important of this observation isn't confined just to blood of course. We tend to think that kidney transplants are better than he slow death which is dialysis. But many do die simply because there aren't enough kidneys available for transplant. And this would be true even if ever potentially usable organ was stripped from corpses, the wishes of their now deceased former owner be damned. To fill this gap we must therefore ask for live donations (much the same being true of liver and lung transplants, heart such cannot of course be carried out from a live donor). But there's a rather limited supply of people willing to live donate a kidney.

When, as we do from time to time, we suggest that the obvious answer is simply to pay donors, as they do in Iran, we're told that paying for kidneys would simply be immoral. As with those shouting about blood. Shrug: this means that people will die because of some squeamishness over cash having been involved.

Oh yes, most moral that outcome is.

A plain pack of lies

BBC News tells us that: “A law introducing plain cigarette packaging in England and Wales could come into force in 2016 after ministers said MPs would be asked to vote on the plan before May's general election.” We really are seeing the thin end of the wedge here as yet another misjudged interference in the free market looks set to take place. The confusion that people like Public Health Minister Jane Ellison harbour is that they only seem to think of smoking in terms of bodily damage. Yes, if you only want to think about smoking in terms of the effects of physical degeneration on body parts, then cigarettes are a terrible thing, and plain packaging can be argued for on those (albeit flimsy) grounds. But only a fool would do that. Jane Ellison is presumably aware that many people still smoke even though they have full knowledge of how bad cigarettes are for them. With this knowledge she ought to have a clue that there is a reason people smoke in spite of knowledge of its degenerative effects – they enjoy doing it. Clearly people who voluntarily hand over money to buy and smoke cigarettes have accounted for cigarettes being bad for your health, but have still concluded that the positive effects of smoking outweigh those negatives. Ben Southwood's blog on smoking is particularly appropriate here.

Contrary to the 'plain packaging' lobby's misapprehension, it is trivially obvious, that smoking is only entirely bad for you if you forget all the reasons that it is good for you. The trouble with going down this road is that if you consider only the costs, then just about everything is bad for you. Take drinking water. By only counting the costs you'd find drinking water is a pretty disagreeable action - it brings about increased urination, it causes time lost in the toilet, it engenders increased chlorine levels in your stomach, and it causes gradual damage to your detrusor muscle in the bladder. Drinking water - one of the most innocuous activities we can undertake - has risks and it has costs, but no one thinks it's bad for you in net terms. Quite the contrary, in places where water is scarce we do all we can to make it plentiful.

Governments interfere too much by focusing only on costs and ignoring benefits. It’s unsurprising that people like Jane Ellison want to trespass into other people’s free choices so much – she’s only aspiring to do what the state does on a frequent basis.  This is the simple and straightforward reason why I'm a libertarian, and why I hold the view that a small government is best. People know how to run their lives better than any government. That's not a blanket truism, but it's true for the vast majority of people, and it's true in the majority of ways that relate to how we live our lives by making cost-benefit analyses and exercise our freedom of choice. Politicians are quick to interfere or ban things that have costs, which often involves failing to appreciate that humans can decide for themselves whether those costs are worth paying.

Because it is impossible for the state to know how much every individual values health, exercise, weight training, smoking, alcohol, and so forth, it is impossible for the government to know better than its citizens what is good for them. A good government would understand this, and seek to minimise its involvement in our lives to enhance our welfare and liberty, as the quality of welfare and the benefits of liberty are synchronised to enable people to voluntarily undertake the activities they prefer.

There are some people we must prevent from working in public service

Try this on for size:

Having spent years attempting to fix broken projects and teams within the NHS and local government, and also in the private sector, what I have learned is this: a public service and a business are inherently different beasts and asking one to behave as the other is like asking a fish to ride a bicycle.

The clue is in the name: the primary aim of a public service is to provide a service to the public – to protect crucial social utilities from the instabilities of capitalism and to avoid negative social impacts.

Public services are democratic. If a service fails to deliver our needs, we can hold those responsible to account at the ballot box. Important matters such as wages, pensions and working conditions are the result of negotiation, and subject to internal and popular support.

No, no, don't agree or disagree a yet, add this from the same piece:

Businesses are hierarchical, not democratic, and wages, terms and conditions are set by the executive and subject to the market. This can be mitigated to some degree by collective bargaining through unions, but the private sector has historically delivered lower wages and poorer working conditions for its employees.

And piece the two together. A public service really, really, is only there to provide that service. Yet it also pays its workers better than a private business. Therefore, the inescapable conclusion must be that a public service is more inefficient than a private business. Because, of whatever available resources there are to provide said service more of them are lavished upon the workers rather than the service provision.

Kerry-anne Mendoza is a former ­management consultant in banking, local government and the NHS, who left her job to join the Occupy protest.

Probably a good idea eh, as we almost certainly don't want her running a public service, do we?