2009 - %3, April

The FDA and Big Pharma: Watchdog or Lapdog?

| Tue Apr. 7, 2009 1:17 PM PDT

Yesterday I wrote about the latest Big Pharma scandal to crawl out from under a rock. It shows, once again, the extent to which many doctors—in this case, psychiatrists—are compromised by their relationships with the drug companies, and the damage these conflicts of interest can do to patients. The same is true of the Food and Drug Administration—and in a way, that’s even worse, since the FDA is supposed to be our watchdog, and has instead too often become Big Pharma’s lapdog.

In an op-ed in yesterday’s Boston Globe, Marcia Angell offers a seven-point agenda to “restore the FDA to its purpose, which is to protect the public from unsafe food, drugs, and devices, not to accommodate the industries it regulates.” She sees the appointment of industry critic Joshua Sharfstein as deputy FDA commissioner as a promising sign—but only a beginning.

Angell, who teaches social medicine at Harvard Medical School and wrote a sharp book on how Big Pharma operates, suggests a series of changes to the system under which drugs are developed, approved, and marketed. Personally, I’d like to see something slightly more dramatic—maybe along the lines of replacing the lab animals used to test new drugs with pharmaceutical company executives. But as a realistic starting place for public policymaking in this area, Angell’s agenda is as sound as anything I’ve seen. 

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Chart of the Day - 4.7.2009

| Tue Apr. 7, 2009 12:55 PM PDT

Via Paul Krugman, this comes from a recent paper by Thomas Philippon and Ariell Reshef.  Basically, they created a metric of financial regulation and graphed it against the relative pay of people in the finance industry.  Guess what?  When the market is lightly regulated, pay skyrockets!

Now, sure, a lot of other stuff was going on during this period too, so take this with a grain of salt.  But still: the amount of money being shoveled into the FIRE sector over the past 30 years has been pretty phenomenal, and it's hardly a stretch to think that that's pretty tightly correlated with loose regulation, massive leverage, and opaque rocket science derivatives.

What's more, as Krugman points out, the amount of money going into finance has been so stratospheric lately that it actually has a significant impact on overall income inequality.  It's only a part of the story, but it's still a part.  One of the reasons there's been less money for the middle class, thus spurring ever greater indebtedness in order to keep living standards on the rise, is because our financial titans kept so much of it for themselves.  It's time for that to stop.  Finance should be the servant of industry, not its master.

Remembering Rwanda--and the Clinton Failure

| Tue Apr. 7, 2009 12:25 PM PDT

This week the world--that is, those in the world who give a damn about such things--is marking the 15th anniversary of the horrific Rwanda genocide. On Tuesday, President Barack Obama released a to-the-point statement on the Rwanda nightmare. It's below. Read it, and tell me if you can spot what's missing:

This week marks the 15th commemoration of the 1994 genocide in Rwanda. It is a somber occasion that causes us to reflect upon the deaths of the more than 800,000 men, women, and children who were killed simply because of their ethnicity or their political beliefs. The memory of these events also deepens our commitment to act when faced with genocide and to work with partners around the world to prevent future atrocities. The figure of 800,000 is so enormous, so daunting, that it runs the risk of becoming a statistic. Today, we must remember that each of the 800,000 individuals who died in 1994 had their own story, their own family, and their own dreams. As we mourn their senseless passing, we must also acknowledge the courageous men and women who survived the genocide and have since demonstrated remarkable strength and generosity in forgiving those who committed these heinous acts. These individuals inspire us daily by working to restore trust and rebuild hope in Rwanda. The United States is committed to its partnership with Rwanda and will continue to support efforts to promote sustainable development, respect for human rights, and lasting peace in Rwanda.

What's not there? Any mention that the United States essentially did nothing at the time to halt the slaughter in Rwanda. At that crucial moment, Bill Clinton was president, and Hillary Clinton, the influential First Lady. In her memoirs, Living History, Hillary Clinton, the current secretary of state, does not write about what went on in the White House during those god-awful weeks in the spring of 1994, when human rights activists were begging the Clinton administration to do something--anything--to stop or slow the mass-murder frenzy underway, and the Clintonites steadfastly refused their entreaties. Clinton does note that later on she came to "regret deeply the failure of the world, including my husband's Administration, to act to end the genocide."

As Obama and others commemorate the tragedy of Rwanda this week, they ought not to shy away from reminiscing about the cowardly and consequential inaction of the United States, particularly that of President Clinton and his top aides and advisers.

MN Update: Franken Lead Grows

| Tue Apr. 7, 2009 11:44 AM PDT

As lawsuits and vote counting continue in the Minnesota Senate race, Al Franken is gaining votes. Many believe that Norm Coleman isn't going to give up until every legal recourse has been exhausted -- not because he thinks he can win, but becuase the longer he can wrangle with Franken in the courts, the longer the Democrats have to operate with 58 votes in the Senate. But if Coleman wants to run for governor or continue his political career in some other way, he may withdraw before he does too much more damage to his public image. I'd give this even odds for going to the Supreme Court.

Is Toxic Waste Undervalued?

| Tue Apr. 7, 2009 11:20 AM PDT

Several academic economists published a paper a few days ago suggesting that toxic assets are priced at pennies on the dollar because that's exactly what they're worth.  Anyone who thinks they're undervalued because of illiquid markets and forced fire sales is just kidding themselves.

Maybe!  But Economics of Contempt isn't convinced.  It turns out the authors analyzed investment grade corporate debt, not housing securities:

Are they serious? The Treasury is arguing that the prices for mortgage-related securities are artificially depressed because of illiquidity and fire sales. No one is arguing that investment grade corporates are underpriced due to illiquidity and fire sales. That's why ABS and CDOs backed by investment grade corporates aren't eligible for the TALF or the PPIP. The fact that prices for tranches of CDOs backed by investment grade corporates are accurate is completely irrelevant to whether prices for mortgage-related securities are accurate.

This is above my pay grade as usual, so just consider it useful data for now.  Seems like a pretty reasonable criticism, though.

Via Megan McArdle.

Is Reviewing Leaks Immoral?

| Tue Apr. 7, 2009 11:10 AM PDT

Via Variety comes the news that Fox News entertainment columnist Roger Friedman was fired yesterday for reviewing a leaked version of the upcoming X-Men Origins: Wolverine movie (or, as I call it, Double the Wolverine, Double the Hotness) last Thursday. The internet leak drew attention for two reasons; one, because it was so far in advance of the film's anticipated May 1 release date, and two, due to its quality, as it was apparently an early studio cut and not a "hand-held camera in a theater" style copy. Friedman's review has since been removed, but it caused ire among hardcore fans as well as at Wolverine studio 20th Century Fox (a division, like Fox News, of everybody's favorite media conglomerate News Corp.). In far less significant but oddly coincidental news, the morning show at my old alma mater LIVE 105 was fired last week and rumors are flying that it was due to their playing 30 seconds of a track from the upcoming Green Day album. Have media companies reached the breaking point with this gol-durned internet and its leaky tubes?
 

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Animal Spirits

| Tue Apr. 7, 2009 10:31 AM PDT

In a review of George Akerlof and Robert Shiller's Animal Spirits, Richard Posner writes:

The idea that monetary policy — raising interest rates [...] to check inflation, and lowering interest rates to check economic downturns — holds the key to moderating the business cycle, and therefore to preventing depressions as well as inflations, has been falsified. The Federal Reserve has pushed interest rates way down, but the amount of lending has been tepid and economic activity has continued to fall.

There are two problems with this.  The smaller of them is Posner's apparent contention that until now economists have believed that monetary policy alone is sufficient to prevent depressions.  This is a crude exaggeration.  The whole point of Keynesian stimulus, after all, is that it's supposed to kick in when monetary policy has reached a lower bound and has no further traction.  That would hardly even be a topic of conversation if everyone believed that monetary policy alone could solve every economic ill.

But the bigger problem is that we've really only tried half of Posner's prescription: lowering interest rates and pumping liquidity into the market during a downturn.  And he's right that it hasn't been enough.  But there's also the flip side: moderating credit expansion during upturns, something that Alan Greenspan signally declined to do during the housing boom.  If he had, though, the housing bubble wouldn't have gotten anywhere near as big as it did.  It still would have burst eventually, but the downturn would have been more modest: probably a fairly ordinary recession to be fought with fairly ordinary monetary means.

I'm generally a fan of more robust countercyclical economic policy, but our recent experience (not to mention the unbroken experience of the past several centuries) prompts a big question for people like me: How do you ensure that it happens not just during downturns, when everyone is eager for it, but also during upturns?  Part of the problem is technical — when should you intervene to slow things down? what's the best way to do it? — but the much bigger problem is purely human.  After all, no one wants to spoil a party when everyone is having a good time, and there are always a dozen plausible reasons why this time it's different and the economy is truly on a new and sustainable flight path.  And so things inevitably get out of control, sometimes disastrously so.

I'm not sure what the answer is here, though certainly a denser web of both regulatory and cultural attitudes oriented toward moderation can help a lot.  But in any case, that's the question to be answered: how do we credibly bind future regulators to pursue robust countercyclical policies during economic expansions in the face of both legitimate technical problems and the animal spirits of human nature?  Suggestions welcome.

Fighting the Power

| Tue Apr. 7, 2009 9:31 AM PDT

Via Alan Jacobs, here's Henry Porter in the Guardian warning about the vast evil perpetrated on the unwary by Google:

Google presents a far greater threat to the livelihood of individuals and the future of commercial institutions important to the community. One case emerged last week when a letter from Billy Bragg, Robin Gibb and other songwriters was published in the Times explaining that Google was playing very rough with those who appeared on its subsidiary, YouTube. When the Performing Rights Society demanded more money for music videos streamed from the website, Google reacted by refusing to pay the requested 0.22p per play and took down the videos of the artists concerned.

It does this with impunity because it is dominant worldwide and knows the songwriters have nowhere else to go. Google is the portal to a massive audience: you comply with its terms or feel the weight of its boot on your windpipe.

Its boot on your windpipe!  Because of a commercial disagreement with another enormous industry over the acceptable size of royalty payments!

Whatever.  But what I'm really curious about is whether the PRS really thinks it can get 30 cents per play for YouTube music videos.  At a guess, that sounds too high by a factor of ten or a hundred.  What are they thinking?

More Gay Marriage

| Tue Apr. 7, 2009 9:00 AM PDT
More good news on the same-sex marriage front: the Vermont legislature has voted to override Gov. Jim Douglas's veto of a bill allowing gays and lesbians to marry.  Score one more for the good guys.

'Fix CNBC' Petition Gaining Steam (Video)

| Tue Apr. 7, 2009 7:40 AM PDT

Kevin, David, and I have all weighed in on CNBC and its problems. What none of us managed to mention in our posts is that the Progressive Change Campaign Committee (PCCC) is running a campaign called 'Fix CNBC' that has gathered over 20,000 signers (me included!) for a petition that reads, in part:

Americans need CNBC to do strong, watchdog journalism – asking tough questions to Wall Street, debunking lies, and reporting the truth. Instead, CNBC has done PR for Wall Street. You've been so obsessed with getting "access" to failed CEOs that you willfully passed on misinformation to the public for years, helping to get us into the economic crisis we face today.

You screwed up badly. Don't apologize – fix it!

CNBC should publicly declare that its new overriding mission will be responsible journalism that holds Wall Street accountable.

PCCC just handed thousands of signed petitions over to CNBC's world headquarters in New Jersey, after a stop at Wall Street in downtown Manhattan. The results are below, and pretty funny.