(As a side note, the fact that France’s energy costs have gone up as much as the UK’s, despite France mostly running on nuclear power, should serve as a wake-up call for people who think nuclear power can solve the UK’s problems.)
This isn't true. The cost of energy is determined by the cost of the *marginal* kWh. At the time scales we are talking about, the marginal kWh is nearly always from gas, because it's the only source of energy that can be practically scaled up within minutes to years. Nuclear takes decades to build, and hydrothermal, wind or solar aren't much better, and none of them can increase power within minutes or hours, so they provide mostly inframarginal kWh. Even if your country's solar is producing power for $0.15/kWh, businesses and homes are paying $0.40/kWh because that's the price that the gas plant operators are charging to put out the last, marginal kWh the grid needs.
Nuclear can make a difference to energy costs, but only on much longer timescales. This is also why energy costs are so high even in many places which are heavily adopting solar. The marginal kWh is still from gas. As long as this is so, Europe will be saddled with high energy costs until they find a different source of gas than Russia, or they move to a different source of marginal kWh, e.g. grid-scale batteries charged by solar.
"Nuclear takes decades to build, and hydrothermal, wind or solar aren't much better, and none of them can increase power within minutes or hours"
The answer to the marginal kWh is storage. At present China is deploying all-in BESS systems for $66/kWh [1]. This is in China, but these systems are mostly deployed on shipping containers that are easy to assemble into full plants. It is very hard to imagine a world where this does not become the dominant factor in determining marginal energy costs, and that world is coming very quickly. (Much more quickly than any new nuclear or hydro can even make it through planning.) I keep seeing folks having forward-looking discussions on energy provisioning that just pretend sub-$100/kWh battery storage isn't a thing. At what all-in storage cost do we all agree that the world has actually changed?
I was thinking this is a feature of pricing in the energy market. Shouldn’t this mean massive profits for French nuclear plant owners and also renewables everywhere across Europe? Do we see this? I feel like I haven’t seen much of that in the news.
When we talk about "the price of electricity", we're usually talking about the spot price. The "average price of electricity" is usually the average spot price. The spot price is determined by the supply and demand at the current moment, and can even become negative if there is more electricity supply than demand. It is the marginal supplier (and demander) that largely determines the spot price.
Not all electricity users buy at the spot price. You can have longer term contracts between producers or suppliers, there are wholesale and retail electricity markets, forwards and other derivatives, etc. The structure of the electricity market is local and complex, and fortunes are made or lost trading in them (cf. Enron). Different users end up paying different prices to different providers, after different middlemen mediate between them, depending on how it all shakes out. However, when we talk about "the price of electricity" we aren't usually talking about all this complexity. We're just talking about the spot price.
Yeah all that extra complexity does make it hard to ‘follow the money’. So your original comment was basically explaining why the chart Noah included doesn’t say much about the cost of energy for retail or industrial consumers in UK vs in France.
Your argument here makes no sense. Nuclear cannot both, "not impact prices now" (because they are set by the marginal cost) and yet still impact prices in the long term.
[edit: I see you sort-of addressed this below and I recant the objection. I will still say that your original comment is poorly worded. I think what you are really saying is that the graph shown by Noah, and the information gleaned is of questionable veracity so far as nuclear is concerned.]
Nice point. The key understanding energy pricing is marginal costs at peak times. Average solar costs maybe low, but to create the solar capacity to meet peak demand would substantially raise those average costs.
My career has been in developing new drugs and treatments, and it's taken me to roles in Big Pharma, small and large biotechs, nonprofit research into cancer and HIV, and also working directly for patient organizations to spur innovative R&D. It frustrates me that both parties are so ignorant of realities of this industry which consumes something like 20% of our GDP (even this number is misleading, as drugs are only a fraction of healthcare spending and people ignore most of that 20% is doctor's high salaries, increasing costs for procedures and hospitalizations, etc. which are not Rx medicine). Democrats focus on the marginal cost of drugs, which for small molecules (stuff you swallow in a pill) are close to zero (maybe actually 7-10% including the process of filling all the little vials and packing and shipping and extensive record keeping and safety checks to satisfy the fda). That's misleading because it only applies to drugs which are successful and it costs on average billions of dollars in failed attempts to find one that works. As you mention, we could reduce drug costs around 90% and still have access to almost everything we have now. Of course we'd bankrupt every pharma and biotech researching new drugs and innovation in the US would plunge. So the Democrats arguments are disingenuous. Republicans on the other hand have generally had such an extreme free market approach, that under Bush II they actually banned the US government from ever even trying to negotiate the prices it pays for Medicare/Medicaid. So we have the situation now that every other developed country negotiates prices in some form of price control except the US. So the US pays maybe twice the cost of Canadians and Europeans for some drugs - and there are likely egregious examples where it's a tenfold difference. Yes, you could say our country altruistically pays more and the excess profit for pharma/biotech does go back into R&D, but as the US GDP becomes a smaller fraction of the Global GDP, I think it's fair to ask why Americans alone have to shoulder this burden while other rich developed countries like Canada, Switzerland, EU pay a lot less. I don't think focusing on poor countries is the right comparison - Pharma can set prices at or above marginal cost of goods for poor regions like Africa where they can do a lot of good and since there was never a scenario of charging African nations hundreds of thousands of dollars for super expensive drugs it's not something that costs pharma. But I believe a "Most Favored Nation" kind of law assuring drugs developed with US government support are not sold at significantly higher prices than our rich nation peers would serve us well to bring down our costs without destroying innovation. And the US has historically funded basic medical research so generously that I believe almost any drug approved by the FDA (though certainly not all) likely benefitted from NIH funded studies, making it particularly unfair that the US then has to pay so much more for treatments we actually helped develop.
> Republicans on the other hand have generally had such an extreme free market approach, that under Bush II they actually banned the US government from ever even trying to negotiate the prices it pays for Medicare/Medicaid.
That's not a free market approach. That's the opposite of a free market approach. Our pharmaceutical market is 100x more screwed up than a free market could ever be.
I have a medical condition that has a new and vastly improved treatment currently in phase 3 clinical trials. It was so successful in phase 1 and 2 that they couldn't even maintain a double blind trial because the patients knew immediately if they got the placebo or the real thing. My doctor told me about it and he would prescribe it to me today if he could. The company making it would happily sell it to me if they could. Problem is they can't because the worthless bureaucrats at the FDA have made that illegal. They have decided they know better than me and my doctor how to manage the risk. So now I have to wait a couple more years (at least) while it goes through the glacial FDA approval bureaucracy even though everybody already knows that it's safe and effective. And all the while companies can sell complete snake oil as "supplements," but god forbid I be allowed to purchase an actual treatment until the government gatekeepers allow me to.
And good luck with RFKj now in charge of the FDA, he will probably slow down drug approval for any drugs that have “chemicals” in them, and focus research on organic foods, paleo diets and homeopathy.
I'd sure like to see a lot more productivity out of all that R&D. It seems that progress on diabetes cures or prevention is non existent, arthritis, autoimmune disease, many cancers and much slower progress for almost all of them, Alzheimer treatment that doesn't cause brain bleeds. We have all kinds of diseases that need a GLP-1 breakthrough. Where are they?
Curing Hepatitis C 15 years ago was a profound human accomplishment in my opinion. In the US alone as many as 80,000 people a year were dying of it. And while HIV hasn't been cured, it's been transformed to a disease patients die with, not from. If you were alive in the 80s and early 90s when it was a death sentence, that's a pretty big deal. Just in my own immediate family, my father was recently cured (sensitive word - I mean it here to reflect his cancer has been undetectable for about 7 years, even off all his meds) of metastatic prostrate cancer in a recent clinical trial. My son has Type I diabetes and his newest gen insulin pump is so good his A1c is basically at the high end of normal. And Vertex is working on an artificial pancreas (basically an implanted little bag of beta cells) which while not yet approved has been working in clinical trials. The COVID vaccine was created in record short time - only a few months after the epidemic hit (it took a little over a year to get to patients including all the necessary human clinical trials). This stuff is really hard - extensive testing in people is very expensive, very slow, and very necessary (google thalidomide impact in Europe vs US). While none of the players - fda, pharma, government- are perfect and you can certainly find terrible examples, this system has worked to reduce a tremendous amount of human suffering and death. And it's an industry the US still dominates. I believe all of the examples I mentioned were largely created in the US with both public and private funding. In my opinion the US excels here due to that combination of massive investment from both public and private funding - take one away and I don't think our system works. Democrats threaten the private funding with price controls and sophistic arguments about "drugs that cost $2 being sold for $2,000", while Republicans threaten the public support for early stage science that is a necessary precursor to industry research. The latter can't be replaced by industry funding - under our 20 year patent system it's just not feasible for industry to fund basic research 20 or 30 years out from an approved drug with revenues.
GLP-1 agonists were developed to treat diabetes, the effect on obesity and addictions was unexpected. Alzheimer’s drugs were sidetracked by fraudulent research focusing only on beta amyloids.
Yes, I know that GLP1 research was for diabetes; perhaps you read that I regard it as a huge breakthrough. Nevertheless, we still don't have prevention or cure.
We also have major problems with drug resistant infections starting with tuberculosis and moving on to UTIs and more.
Rather than personal testimonials, it might be interesting to see what we get back from the R&D spending in terms of treatments and so on. Not to cut spending but to improve grant making.
"Eventually, as more investors learned to be cool and rational like Buffett"
Complete speculation on my part, but I don't think that anyone is any more cooler and rational than they were in the 60s/70s. My thesis is that technology improvements and regulatory changes have led to cheaper price discovery => more efficient markets.
It’s time to face up to the fact that the Abundance program can only be achieved if the Democrats are in power. DOGE, Trump, and the entire Republican party are staging a full scale attack on state capacity, a vital part of the Abundance agenda. Democrats are generally fine with highly competent technical state employees. The annoying tendency of Dems to attack corporate power is best overlooked-consider it a necessary pushback against capitalist Bonopartism that we are experiencing now from Musk, Thiel, and others. I hope the Abundance program aim isn’t to trade democracy for Abundance.
Yeah, they can show me that they can do this in the areas they already control and then maybe I would think about voting for them. Right now it's the Republicans who seem to be by far the most competent party at the state level. Not sure why they suddenly go full retard when they get to the federal government.
We can have a huge abundance of housing, energy supply and healthcare without additional state capacity, just by cutting lots of regulations like zoning, NEPA/CEQA/CARB, and long FDA approval processes and limits on medical residences and certificate of need laws that stop hospitals from competing.
I think that any model of a political economy that ignores political power is just an invalid model. There is a reason that many Democratic reforms have been stymied in the past, and there's a reason that Trump has the political freedom to propose price controls right now (irrespective of whether those are a good idea or not.) To a very great extent this is because corporate concentration makes these organizations (1) extremely politically powerful in Congress, but also (2) extremely vulnerable to extra-legal interventions by a vindictive executive branch, which means in turn that (3) they will deploy their power in ways that support the political goals of a vindictive executive, while blocking those of a more reasonable political party.
Democrats can try to address the power imbalances, or they can learn to govern like Trump. But there is no stable political world in which one political party has the political freedom to impose sweeping price controls, and the other party is unable to do anything similar. To the extent that "centrist" beat down "leftists" and prevent them from addressing concentration of wealth and power, you're just ensuring the only option is Trump-style executive governance, whether from the right or left.
I read the long tedious transcript of Klein's podcast with Teachout and the other person. She came across to me as rather power mad. Deeply desirous of ending the power of any profit making entity and taking it all for her favored groups. At first it sounded like participatory democracy from the 70s which we know failed to deliver. But she wants more, much more.
Among other failures, her definition of monopoly includes everything from Alphabet to a home builder in a small community. She just wants the power to distribute all the goodies.
<I don't understand why leftists think breaking up big companies = addressing political power.>
Presumably, breaking up big corporations limits the centralization of political influence that economic concentration inevitably brings. During the Gilded Age, one of the main reasons for antitrust regulation was the perception that corporate interests (from Standard Oil to the railroads to Carnegie's U.S. Steel) dominated the urban political machines and the party caucuses. The size of those large corporations dwarfed the bureaucracies of many American towns and cities, giving them large amounts of leverage at the state and local level (which is significant in a federal system like ours).
<Anti-monopoly policy, if done well, makes sense for consumer protection. It doesn't make sense for addressing political power dynamics.>
Incidentally, I agree: antitrust policy action is an inefficient way to tackle power dynamics. A better alternative would be punitive taxation or public financing of political campaigns; alternatively, the government could "compete" with Big Business in key sectors by creating a public option (think a state-owned airline like Qatar Airlines, or a Medicare public option for under-65 patients). Both are extremely complicated endeavors and take real political muscle, particularly at the legislative level: since Congress is incompetent on a good day, it seems easier to hire a few progressive-minded antitrust lawyers as regulators and sicc them on Big Business. Plus America's always been a rather litigation-centered society, so relying on regulatory ordinances and lawsuits has always been our bandaid solution to most social problems.
And Trump is the same, he wants all corporations to kiss his ring, and his FTC is continuing to go after Google for the great harm of providing free search and a free web browser.
First of all, I don’t take anyone seriously when they say “leftists.” It gives off a “I’m a right wing troll living in my basement and covered with Cheeto dust” vibe. If you didn’t mean to give that impression, use more serious terminology.
And yes, it absolutely does matter politically whether a single corporate CEO can adopt policy that affects the entire country. Witness Trump calling for Mark Zuckerberg’s arrest and obtaining Zuckerberg’s acquiescence in ways that tangibly affect the way political media is consumed in the US. Or intimidating Jeff Bezos, and the multiple business interests (space! amazon! The Post!) that he can bring to heel by threatening the person of that one CEO. A very similar effect can be leveraged on large, concentrated news-owning media empires like Disney and Paramount. This sort of concentrated intimidation becomes much harder when business interests are more decentralized.
obnoxious and stupid comment. Do you not think there's a category worth defining that includes Zephyr, Bernie, AOC but not Noah and Yglesias? Leftist is pretty neutral - maybe unless you spend too much time hate-reading right-wing content. What term are we allowed to use for that that doesn't make you sad?
Disney and Paramount do not have anything close to monopolies, that's my point. They're just big companies. Did you not see how Trump bullied law firms? Those are not run by Bezos or Zuckerberg-level billionaires and it seemed to work pretty well! If you don't think America should have big companies, that's an argument I guess, but don't hide behind Zuckerberg, just say that. All US companies should be small, and then enjoy fighting guilds instead, I guess.
Gosh, I wonder what a set of major law firms that specialize in M&A work have in common with a totally different set of massive media conglomerates that all have M&A cases in front of the Federal government in the near term, and coincidentally control a huge percentage of the news environment because they’ve spent years gobbling those companies up via acquisitions.
Probably nothing and the whole set of events is a total coincidence.
Disney makes cartoons and silly increasingly unpopular super hero movies and bad remakes of old ones, I don’t think that is any longer a huge portion of American culture.
This is one of the most convoluted theories I have ever heard. Somehow the cause of an authoritarian president imposing price controls is the power of corporations? The very same corporations that are damaged by the price controls the president is imposing?
Blaming the political power of corporations for price controls, which is pretty much the last policy any corporation wants, is clearly just mental gymnastics to always blame everything on the corporations. Noah is clearly right that this comes from resentment and not any sort of rational thinking.
Ironically, I've found that I'm unlikely to find strong rational thinking among the kind of people who sign their post with ranty insinuations about "resentment." In any case, just to lay this out in more detail, it's more a handful of observations than a theory:
1. Corporations have been relatively quick to kowtow to Trump. This is largely because Trump has enormous control over their operations, and because he's exceptionally vindictive.
2. Corporate concentration of various sorts means that large swaths of the media (and social media) ecosystem are controlled by large corporations, who Trump has even more extraordinary control over due to their constant business before the Executive Branch.
3. When Presidents don't behave this way -- literally, threaten corporations with the power that the State has over them -- they can ride roughshod over just about any attempt to control them, largely due to their huge lobbying budgets and influence with Congress.
4. There are countries where concentrated corporate wealth has overpowered the state's independence, and there are other examples where the state was able to gain control over concentrated corporate power (due to the fact that it's relatively easy to control if you're vicious enough.) Russia In the 1990s/2000s would be a good example of the former, and Russia in the post-Putin era would be a good example of the latter. I would go so far as to argue that the existence of the second version of Russia was to some extent a response to the problems of the first version.
5. Liberal democracy and the rule of law require that corporations *not* be so concentrated and powerful that they can override the normal functioning of democratic government. It also requires that they not be so concentrated and vulnerable that a dictator can take over the functions of the private sector with a handful of flimsy executive orders.
Your first 3 points you use to supposedly to justify your theory that corporations hold all the power are literally talking about how the government can make them do whatever it wants. You are doing a better job arguing against yourself than I am.
Authoritarian governments have historically been excellent at controlling large and concentrated industries. That’s a big part of my point: once you have a relatively high degree of industry concentration, that industry becomes incredibly powerful and the only question is who will wield that power: management (in their own interests) or an authoritarian government.
Insofar as the original topic was about whether industry concentration yields power, we’ve settled the question. I’m discussing the follow-on question, which is “why is concentration of power bad for democracy.” To paraphrase apocryphal-Churchill, we’re just haggling over the price.
Trump is still an idiot, but would it make sense to insist that drug manufacturers don't charge higher prices in the United States than they do in, say, France, Japan, or any other country with a GDP per capita of over $30,000? (With one of the goals being *higher* drug prices in other countries, so that they pay their fair share of the R&D expenses.)
I think something a lot like 1 is the case in a lot of countries, and they actually might relax price controls (or allow their health care systems to pay more) if pharmaceutical companies can credibly threaten to refuse to sell at the price that country demands.
A President Trump or Harris can insist all they want, but they can’t set what prices companies charge for their products in other countries. Novo Nordisk sells Ozempic at whatever price the market will bear in the US or in Denmark. It’s a Danish company and if Trump adds a tariff he (actually Congress has the tariff power, but he usurped it) can make it expensive to import, or Congress can pass a subsidy, but they can’t force a foreign company to change what prices it charges in other foreign countries.
I think the most convincing explanation for the tech job bust is exuberant overhiring during the pandemic (when we all believed in a remote work revolution, and when startup valuations became inflated) followed by panicked layoffs once a) interest rates went up, and b) companies decided to cut costs and redirect the money to AI development.
The impact of AI tools themselves on developer productivity is still too small to explain the magnitude of difference.
As price controls go, it seems like drug prices are up there as an area where it may actually be a good idea, and you can't just resort to the Econ 101 counterargument. This is not exactly an area driven by market forces.
Not only do patents mean that drug makers have legal monopolies on many drugs, but even off-patent drugs are often effective monopolies due to the high capital costs and low marginal costs associated with producing many drugs, making market entry a risky prospect. This also means that, while price controls may drive down innovation, they are unlikely to lead to shortages in the same way that price controls on something like toilet paper might. Instead, in most situations, the manufacturers really can and will just take a smaller profit, because the alternative is usually no profit. It's comparable to utilities, another area where we have legal/natural monopolies combined with price controls.
Beyond that, insurance means that people often don't even know what they are paying for the drugs (how many think drug prices are the co-pay?). They also don't directly feel the price of the drug, as the only feedback they get is higher premiums, or even just lower wages due to their employer paying higher premiums, and you feel those indirect costs whether you chose to purchase the drug, or if someone else in your risk pool did so.
This is obviously a bad idea if it's just the camel's nose to other price controls, but there are non-trivial arguments that price controls on drugs make sense.
Couldn't France's price surge be because they're all connected to the same energy grid? Which would be solved if all countries on said grid (such as Germany and the UK) stopped their ongoing energy-seppuku?
I admit, I'm siloed enough that I have not seen this very reasonable critique of force-lowering drug costs before. While it's pretty convincing, I'm curious if anyone can explain what the alternative would be. Having to spend a huge proportion of your income on medicine is, to me, simply morally unacceptable in a rich society--is there a way to correct that which doesn't have the negative results Noah outlined here?
Most countries regulate the bulk purchasing of drugs. The US is the outlier. It’s reasonable to assert that US profits were buttressing the R&D that everyone else benefited from.
“Limiting these companies’ market size by limiting the prices they can charge will result in less research spending, and ultimately fewer new medicines and treatments.”
My question is what other incentives and mechanisms can be put into place to further drug innovation. More public R&D seems like a no-brainer.
This is another idea:
“Since reforming its system in the early 2010s, Germany has allowed manufacturers to freely set prices for a limited period when bringing new drugs to the market. It then uses the data available from that period for a nongovernmental and nonprofit research body to evaluate the benefit provided by the new drug, as compared to existing alternatives. This added benefit, or lack thereof, then serves as the foundation for price negotiations between drug manufacturers and health plans.”
“My question is what other incentives and mechanisms can be put into place to further drug innovation. More public R&D seems like a no-brainer. “
While probably a decent idea, I think the real expensive parts of drug development are actually finding the drugs that pan out once targets and research have been identified and doing the efficacy and safety trials. I doubt the public sector is going to finance all that.
Pharma's argument that they needed to sell drugs for high prices in America to fund research was always flawed. Most of the breakthroughs came through government funded research that was basically gifted to pharma.
It has been true for a long time that most medical research in the US is funded by the government through the National Institutes of Health (NIH), which is the largest public funder of biomedical research in the world.
But, trump just cut billions from NIH. Trump's price controls won't hurt innovation as much as his cuts to NIH will.
"Pharma's argument that they needed to sell drugs for high prices in America to fund research was always flawed. Most of the breakthroughs came through government funded research that was basically gifted to pharma."
The basic breakthroughs and target may come from basic research, but someone still needs to find the compounds, get everything working, get it through trials and regulatory clearances which is where the bulk of the expense is.
The manufacturers bear the major cost of bringing a new drug to the market. In this situation, the first dose costs $1 billion, and the second dose costs $0.50. If the manufacturer is not protected so they can recoup the development costs, the drugs won’t be brought to market.
Some would applaud that outcome, but I’m not one.
It's simply incorrect to say that it’s immoral to have cost be a factor in what healthcare people receive. Healthcare is not a free good. There are trade-offs between it and other needs. The only way to know how much healthcare to buy compared to water, food, shelter, education, etc., is through prices.
I'm certain that a comprehensive R&D plan could help with this. Unfortunately we're pairing this policy with a massive reduction in NIH funding, so it's hard to see good outcomes here. (Unfortunately they will be short-term *popular* outcomes, and the costs will be born by the next administration.)
This is one field where AI has been extremely useful already - it has greatly increased the rate at which we can identify new potential organic molecules with the likelihood of providing the desired effect.
Baumol's cost disease? Labor intensive sectors of the economy (such as health care and education) get more expensive and take up a larger percentage of GDP because everything else gets (relatively) cheaper and more productive.
If it’s morally unacceptable to not have to pay a huge proportion of income for drugs, what about for other medical care? Other countries have “free” healthcare but it is subpar and comes with long waits and rationing, so the alternative to high prices is reduced supply.
This really isn't what I wanted to talk about but I'll bite: I've spent most of my adult life living in other countries. There's excellent state-subsidized healthcare available for free here, and there's plenty of bad healthcare that people pay huge amounts for in the United States. Rationing and wait times depend on the system we're talking about, but money is another way of rationing, and plenty of people wait huge amounts of time in the U.S. for care. Neither system consistently offers "the best" care. In one, people who are lucky or can afford it get access to extremely good care that would be available nowhere else (I mean experimental treatments, that kind of thing). In the other, everyone gets access to a baseline of care and no one lives their lives terrified of what happens to their family if they get cancer. Both systems have drawbacks, and positive, so I make my judgement morally on which one is "better."
Noah- great column as always (these are my favorite). For the pharmaceuticals, I get your argument that more profit for pharma more innovation, but that can’t be the only conclusion that is acceptable here… obviously.
Other countries do pay much less than us (notably Europe) and as Mark Cuban and others advocate for, that is something we should aim to change. So, while I’m sure with all things Trump this has been done ham- handed, I at least can agree with the goal
The Tech job bust is interesting - I would bet that there is still a lot of demand for tech roles outside of the IT sector. My hope is that deploying all those tech workers to other industries will help push them to improve their productivity...
Trump's executive orders are nonsense, but there is no attempt to actually look at how health financing, health procurement, and drug development work.
Noah Smith takes it as gospel truth that the number of patents is translating into better patient outcomes.
In every other advanced nation on the planet, there is something called "Health Technology Assessment". This is a government process where drugs wanting reimbursement from insurers or government providers or what have you, need to show to a government body that the cost they are putting on the drug is justified.
China does this. Japan does this. The Netherlands does this. Germany does this. Canada does this.
This isn't some massive anti capitalist scam that popped up from progressive overreach, this is how modern universal health systems have functioned the world over for literal decades and there is no mention of it.
According to Statista, (search for "Global health expenditure by country in 2018 and forecast for 2028"), 35% of all global health dollars in 2018 were spent in the US, with 41% likely to be spent in 2028. That is insane, the US is less than 5% of global population, but we spend so much more money.
Our drug costs are 3 to 10 times greater than peer nations. I worked in health care consulting on market access and pricing for years for these big pharma companies. I worked with Sanofi, Roche, Abbott, Takeda, on big projects for billion dollar drugs. Never once in all that time did I ever see a "cost of production". The word is value based care. They will charge what the market and governments will let them get away with.
When you wrote about tariffs, you rightly pointed about that Americans weren't going to be willing to pay 6000$ for a us produced iPhone. However, thag is exactly the situation we have with pharmaceuticals in the US. Companies can just say that a drug which costs 10$ a dose to produce in a Dutch factory will be sold at 1,000$ a dose in Germany, but 10,000$ a dose in the US.
HTA systems in other countries are designed to allow a premium for improvement or novelty or better patient tolerability. It's a huge field. That the US does not have such a system is a massive scandal.
The USA is rich, and of global spending on airlines 35% is also from the USA, on hotels 30%, restaurants 25% and automobiles 20%; so 35% for drugs is not too far out of line. Actual spending on total healthcare is 40%, so that is the one where the US spends the most.
If what you say about the inherent “correctness” of foreign drug pricing is correct, I’m not sure why you object to MFN drug pricing. In essence it is letting those foreign pricing regimes set the market. Kind of like dollarizing a foreign currency—you’ve given your monetary decisions to someone else.
Disclosure: I have been a Berkshire-Hathaway shareholder for 25 years. Buffett was able to ignore the whims of Wall Street as he structured the company after the failure of the textile company. He focused on the long game and not quarterly earning such as most companies and never engaged in the type of financial engineering that Jack Welch did at GE. Buffett also recognized the value of investing in insurance companies and the 'float' that they provide. Over the years he made a couple of bad investments but not many. I'm still wondering why he sold off half of the BYD holdings given how the company has become the premier manufacturer of electronic vehicles in the world.
"In any case, I wonder if this protracted quiet tech bust is a significant factor in the emergence of the Tech Right."
This is an interesting take but misses the mark IMO. You need to differentiate the tech executive/VC class and tech employees, as well as between Big Tech and Little Tech interests. Plot these on a 2x2
I would guess that:
1) Big tech employees are probably the furthest left of all four quadrants, yet they are the ones hurt by the tech bust the most
2) Little tech executives probably had the strongest shift toward the Right. These folks are the ones that stand to benefit most from AI disruption and downward pressure on employee salaries
If you ask little tech executives why they switched political sides in 2024, they'd likely say this was due to Biden/Harris support for DEI, inept policy around AI and crypto, and a very anti-M&A stance - all of which has been a drag on the innovation cycle in Silicon Valley.
This is still very simplistic - there's tons of overlap between Big and Little tech interests, and what type of tech probably matters a lot (crypto and climate tech leanings are probably pretty different), but may be a useful starting point for understanding "Tech" politics a little more precisely.
(As a side note, the fact that France’s energy costs have gone up as much as the UK’s, despite France mostly running on nuclear power, should serve as a wake-up call for people who think nuclear power can solve the UK’s problems.)
This isn't true. The cost of energy is determined by the cost of the *marginal* kWh. At the time scales we are talking about, the marginal kWh is nearly always from gas, because it's the only source of energy that can be practically scaled up within minutes to years. Nuclear takes decades to build, and hydrothermal, wind or solar aren't much better, and none of them can increase power within minutes or hours, so they provide mostly inframarginal kWh. Even if your country's solar is producing power for $0.15/kWh, businesses and homes are paying $0.40/kWh because that's the price that the gas plant operators are charging to put out the last, marginal kWh the grid needs.
Nuclear can make a difference to energy costs, but only on much longer timescales. This is also why energy costs are so high even in many places which are heavily adopting solar. The marginal kWh is still from gas. As long as this is so, Europe will be saddled with high energy costs until they find a different source of gas than Russia, or they move to a different source of marginal kWh, e.g. grid-scale batteries charged by solar.
"Nuclear takes decades to build, and hydrothermal, wind or solar aren't much better, and none of them can increase power within minutes or hours"
The answer to the marginal kWh is storage. At present China is deploying all-in BESS systems for $66/kWh [1]. This is in China, but these systems are mostly deployed on shipping containers that are easy to assemble into full plants. It is very hard to imagine a world where this does not become the dominant factor in determining marginal energy costs, and that world is coming very quickly. (Much more quickly than any new nuclear or hydro can even make it through planning.) I keep seeing folks having forward-looking discussions on energy provisioning that just pretend sub-$100/kWh battery storage isn't a thing. At what all-in storage cost do we all agree that the world has actually changed?
[1] https://archive.is/UXcdL
I was thinking this is a feature of pricing in the energy market. Shouldn’t this mean massive profits for French nuclear plant owners and also renewables everywhere across Europe? Do we see this? I feel like I haven’t seen much of that in the news.
When we talk about "the price of electricity", we're usually talking about the spot price. The "average price of electricity" is usually the average spot price. The spot price is determined by the supply and demand at the current moment, and can even become negative if there is more electricity supply than demand. It is the marginal supplier (and demander) that largely determines the spot price.
Not all electricity users buy at the spot price. You can have longer term contracts between producers or suppliers, there are wholesale and retail electricity markets, forwards and other derivatives, etc. The structure of the electricity market is local and complex, and fortunes are made or lost trading in them (cf. Enron). Different users end up paying different prices to different providers, after different middlemen mediate between them, depending on how it all shakes out. However, when we talk about "the price of electricity" we aren't usually talking about all this complexity. We're just talking about the spot price.
Yeah all that extra complexity does make it hard to ‘follow the money’. So your original comment was basically explaining why the chart Noah included doesn’t say much about the cost of energy for retail or industrial consumers in UK vs in France.
> Nuclear takes decades to build
No it doesn't. South Korea has an average build time for nuclear plants under 5 years and Japan does it in just under 4 on average. https://www.scmp.com/news/asia/article/2027347/south-korea-second-fastest-nuclear-plant-building-country
Your argument here makes no sense. Nuclear cannot both, "not impact prices now" (because they are set by the marginal cost) and yet still impact prices in the long term.
[edit: I see you sort-of addressed this below and I recant the objection. I will still say that your original comment is poorly worded. I think what you are really saying is that the graph shown by Noah, and the information gleaned is of questionable veracity so far as nuclear is concerned.]
Nice point. The key understanding energy pricing is marginal costs at peak times. Average solar costs maybe low, but to create the solar capacity to meet peak demand would substantially raise those average costs.
"Warren Buffet is dead" made me do a double take!
😅😅😅
My career has been in developing new drugs and treatments, and it's taken me to roles in Big Pharma, small and large biotechs, nonprofit research into cancer and HIV, and also working directly for patient organizations to spur innovative R&D. It frustrates me that both parties are so ignorant of realities of this industry which consumes something like 20% of our GDP (even this number is misleading, as drugs are only a fraction of healthcare spending and people ignore most of that 20% is doctor's high salaries, increasing costs for procedures and hospitalizations, etc. which are not Rx medicine). Democrats focus on the marginal cost of drugs, which for small molecules (stuff you swallow in a pill) are close to zero (maybe actually 7-10% including the process of filling all the little vials and packing and shipping and extensive record keeping and safety checks to satisfy the fda). That's misleading because it only applies to drugs which are successful and it costs on average billions of dollars in failed attempts to find one that works. As you mention, we could reduce drug costs around 90% and still have access to almost everything we have now. Of course we'd bankrupt every pharma and biotech researching new drugs and innovation in the US would plunge. So the Democrats arguments are disingenuous. Republicans on the other hand have generally had such an extreme free market approach, that under Bush II they actually banned the US government from ever even trying to negotiate the prices it pays for Medicare/Medicaid. So we have the situation now that every other developed country negotiates prices in some form of price control except the US. So the US pays maybe twice the cost of Canadians and Europeans for some drugs - and there are likely egregious examples where it's a tenfold difference. Yes, you could say our country altruistically pays more and the excess profit for pharma/biotech does go back into R&D, but as the US GDP becomes a smaller fraction of the Global GDP, I think it's fair to ask why Americans alone have to shoulder this burden while other rich developed countries like Canada, Switzerland, EU pay a lot less. I don't think focusing on poor countries is the right comparison - Pharma can set prices at or above marginal cost of goods for poor regions like Africa where they can do a lot of good and since there was never a scenario of charging African nations hundreds of thousands of dollars for super expensive drugs it's not something that costs pharma. But I believe a "Most Favored Nation" kind of law assuring drugs developed with US government support are not sold at significantly higher prices than our rich nation peers would serve us well to bring down our costs without destroying innovation. And the US has historically funded basic medical research so generously that I believe almost any drug approved by the FDA (though certainly not all) likely benefitted from NIH funded studies, making it particularly unfair that the US then has to pay so much more for treatments we actually helped develop.
> Republicans on the other hand have generally had such an extreme free market approach, that under Bush II they actually banned the US government from ever even trying to negotiate the prices it pays for Medicare/Medicaid.
That's not a free market approach. That's the opposite of a free market approach. Our pharmaceutical market is 100x more screwed up than a free market could ever be.
I have a medical condition that has a new and vastly improved treatment currently in phase 3 clinical trials. It was so successful in phase 1 and 2 that they couldn't even maintain a double blind trial because the patients knew immediately if they got the placebo or the real thing. My doctor told me about it and he would prescribe it to me today if he could. The company making it would happily sell it to me if they could. Problem is they can't because the worthless bureaucrats at the FDA have made that illegal. They have decided they know better than me and my doctor how to manage the risk. So now I have to wait a couple more years (at least) while it goes through the glacial FDA approval bureaucracy even though everybody already knows that it's safe and effective. And all the while companies can sell complete snake oil as "supplements," but god forbid I be allowed to purchase an actual treatment until the government gatekeepers allow me to.
And good luck with RFKj now in charge of the FDA, he will probably slow down drug approval for any drugs that have “chemicals” in them, and focus research on organic foods, paleo diets and homeopathy.
Yeah, he's the worst possible outcome.
I'd sure like to see a lot more productivity out of all that R&D. It seems that progress on diabetes cures or prevention is non existent, arthritis, autoimmune disease, many cancers and much slower progress for almost all of them, Alzheimer treatment that doesn't cause brain bleeds. We have all kinds of diseases that need a GLP-1 breakthrough. Where are they?
Curing Hepatitis C 15 years ago was a profound human accomplishment in my opinion. In the US alone as many as 80,000 people a year were dying of it. And while HIV hasn't been cured, it's been transformed to a disease patients die with, not from. If you were alive in the 80s and early 90s when it was a death sentence, that's a pretty big deal. Just in my own immediate family, my father was recently cured (sensitive word - I mean it here to reflect his cancer has been undetectable for about 7 years, even off all his meds) of metastatic prostrate cancer in a recent clinical trial. My son has Type I diabetes and his newest gen insulin pump is so good his A1c is basically at the high end of normal. And Vertex is working on an artificial pancreas (basically an implanted little bag of beta cells) which while not yet approved has been working in clinical trials. The COVID vaccine was created in record short time - only a few months after the epidemic hit (it took a little over a year to get to patients including all the necessary human clinical trials). This stuff is really hard - extensive testing in people is very expensive, very slow, and very necessary (google thalidomide impact in Europe vs US). While none of the players - fda, pharma, government- are perfect and you can certainly find terrible examples, this system has worked to reduce a tremendous amount of human suffering and death. And it's an industry the US still dominates. I believe all of the examples I mentioned were largely created in the US with both public and private funding. In my opinion the US excels here due to that combination of massive investment from both public and private funding - take one away and I don't think our system works. Democrats threaten the private funding with price controls and sophistic arguments about "drugs that cost $2 being sold for $2,000", while Republicans threaten the public support for early stage science that is a necessary precursor to industry research. The latter can't be replaced by industry funding - under our 20 year patent system it's just not feasible for industry to fund basic research 20 or 30 years out from an approved drug with revenues.
GLP-1 agonists were developed to treat diabetes, the effect on obesity and addictions was unexpected. Alzheimer’s drugs were sidetracked by fraudulent research focusing only on beta amyloids.
Yes, I know that GLP1 research was for diabetes; perhaps you read that I regard it as a huge breakthrough. Nevertheless, we still don't have prevention or cure.
We also have major problems with drug resistant infections starting with tuberculosis and moving on to UTIs and more.
Rather than personal testimonials, it might be interesting to see what we get back from the R&D spending in terms of treatments and so on. Not to cut spending but to improve grant making.
"Eventually, as more investors learned to be cool and rational like Buffett"
Complete speculation on my part, but I don't think that anyone is any more cooler and rational than they were in the 60s/70s. My thesis is that technology improvements and regulatory changes have led to cheaper price discovery => more efficient markets.
Should we still be HODLing our GME stonks, and is now the right time to unload all those NFTs we bought 4 years ago?
It’s time to face up to the fact that the Abundance program can only be achieved if the Democrats are in power. DOGE, Trump, and the entire Republican party are staging a full scale attack on state capacity, a vital part of the Abundance agenda. Democrats are generally fine with highly competent technical state employees. The annoying tendency of Dems to attack corporate power is best overlooked-consider it a necessary pushback against capitalist Bonopartism that we are experiencing now from Musk, Thiel, and others. I hope the Abundance program aim isn’t to trade democracy for Abundance.
If the Democrats want to implement Abundance, I encourage them to start in the states which they fully control.
I live in California and would be delighted if any part of the government here would get out of the way of getting things done.
EDIT: I’m not holding my breath waiting for it to happen.
Yeah, they can show me that they can do this in the areas they already control and then maybe I would think about voting for them. Right now it's the Republicans who seem to be by far the most competent party at the state level. Not sure why they suddenly go full retard when they get to the federal government.
We can have a huge abundance of housing, energy supply and healthcare without additional state capacity, just by cutting lots of regulations like zoning, NEPA/CEQA/CARB, and long FDA approval processes and limits on medical residences and certificate of need laws that stop hospitals from competing.
I think that any model of a political economy that ignores political power is just an invalid model. There is a reason that many Democratic reforms have been stymied in the past, and there's a reason that Trump has the political freedom to propose price controls right now (irrespective of whether those are a good idea or not.) To a very great extent this is because corporate concentration makes these organizations (1) extremely politically powerful in Congress, but also (2) extremely vulnerable to extra-legal interventions by a vindictive executive branch, which means in turn that (3) they will deploy their power in ways that support the political goals of a vindictive executive, while blocking those of a more reasonable political party.
Democrats can try to address the power imbalances, or they can learn to govern like Trump. But there is no stable political world in which one political party has the political freedom to impose sweeping price controls, and the other party is unable to do anything similar. To the extent that "centrist" beat down "leftists" and prevent them from addressing concentration of wealth and power, you're just ensuring the only option is Trump-style executive governance, whether from the right or left.
I don't understand why leftists think breaking up big companies = addressing political power.
4 huge tech companies, 20 pharma companies or a million doctors represented by the AMA, all have a massive political weight.
Anti-monopoly policy, if done well, makes sense for consumer protection. It doesn't make sense for addressing political power dynamics.
I read the long tedious transcript of Klein's podcast with Teachout and the other person. She came across to me as rather power mad. Deeply desirous of ending the power of any profit making entity and taking it all for her favored groups. At first it sounded like participatory democracy from the 70s which we know failed to deliver. But she wants more, much more.
Among other failures, her definition of monopoly includes everything from Alphabet to a home builder in a small community. She just wants the power to distribute all the goodies.
<I don't understand why leftists think breaking up big companies = addressing political power.>
Presumably, breaking up big corporations limits the centralization of political influence that economic concentration inevitably brings. During the Gilded Age, one of the main reasons for antitrust regulation was the perception that corporate interests (from Standard Oil to the railroads to Carnegie's U.S. Steel) dominated the urban political machines and the party caucuses. The size of those large corporations dwarfed the bureaucracies of many American towns and cities, giving them large amounts of leverage at the state and local level (which is significant in a federal system like ours).
<Anti-monopoly policy, if done well, makes sense for consumer protection. It doesn't make sense for addressing political power dynamics.>
Incidentally, I agree: antitrust policy action is an inefficient way to tackle power dynamics. A better alternative would be punitive taxation or public financing of political campaigns; alternatively, the government could "compete" with Big Business in key sectors by creating a public option (think a state-owned airline like Qatar Airlines, or a Medicare public option for under-65 patients). Both are extremely complicated endeavors and take real political muscle, particularly at the legislative level: since Congress is incompetent on a good day, it seems easier to hire a few progressive-minded antitrust lawyers as regulators and sicc them on Big Business. Plus America's always been a rather litigation-centered society, so relying on regulatory ordinances and lawsuits has always been our bandaid solution to most social problems.
I wouldn’t fly on Trump Airlines, and the FAA’s ATC disaster could be fixed by privatizing it like Canada and many other countries have done.
And Trump is the same, he wants all corporations to kiss his ring, and his FTC is continuing to go after Google for the great harm of providing free search and a free web browser.
First of all, I don’t take anyone seriously when they say “leftists.” It gives off a “I’m a right wing troll living in my basement and covered with Cheeto dust” vibe. If you didn’t mean to give that impression, use more serious terminology.
And yes, it absolutely does matter politically whether a single corporate CEO can adopt policy that affects the entire country. Witness Trump calling for Mark Zuckerberg’s arrest and obtaining Zuckerberg’s acquiescence in ways that tangibly affect the way political media is consumed in the US. Or intimidating Jeff Bezos, and the multiple business interests (space! amazon! The Post!) that he can bring to heel by threatening the person of that one CEO. A very similar effect can be leveraged on large, concentrated news-owning media empires like Disney and Paramount. This sort of concentrated intimidation becomes much harder when business interests are more decentralized.
obnoxious and stupid comment. Do you not think there's a category worth defining that includes Zephyr, Bernie, AOC but not Noah and Yglesias? Leftist is pretty neutral - maybe unless you spend too much time hate-reading right-wing content. What term are we allowed to use for that that doesn't make you sad?
Disney and Paramount do not have anything close to monopolies, that's my point. They're just big companies. Did you not see how Trump bullied law firms? Those are not run by Bezos or Zuckerberg-level billionaires and it seemed to work pretty well! If you don't think America should have big companies, that's an argument I guess, but don't hide behind Zuckerberg, just say that. All US companies should be small, and then enjoy fighting guilds instead, I guess.
Gosh, I wonder what a set of major law firms that specialize in M&A work have in common with a totally different set of massive media conglomerates that all have M&A cases in front of the Federal government in the near term, and coincidentally control a huge percentage of the news environment because they’ve spent years gobbling those companies up via acquisitions.
Probably nothing and the whole set of events is a total coincidence.
Disney isn't a monopoly, but it does own a huge portion of American popular culture and has a tendency to throw its weight around...
Disney makes cartoons and silly increasingly unpopular super hero movies and bad remakes of old ones, I don’t think that is any longer a huge portion of American culture.
It owns ESPN where you can stream all its sports stuff for $30/mo!
This is one of the most convoluted theories I have ever heard. Somehow the cause of an authoritarian president imposing price controls is the power of corporations? The very same corporations that are damaged by the price controls the president is imposing?
Blaming the political power of corporations for price controls, which is pretty much the last policy any corporation wants, is clearly just mental gymnastics to always blame everything on the corporations. Noah is clearly right that this comes from resentment and not any sort of rational thinking.
Ironically, I've found that I'm unlikely to find strong rational thinking among the kind of people who sign their post with ranty insinuations about "resentment." In any case, just to lay this out in more detail, it's more a handful of observations than a theory:
1. Corporations have been relatively quick to kowtow to Trump. This is largely because Trump has enormous control over their operations, and because he's exceptionally vindictive.
2. Corporate concentration of various sorts means that large swaths of the media (and social media) ecosystem are controlled by large corporations, who Trump has even more extraordinary control over due to their constant business before the Executive Branch.
3. When Presidents don't behave this way -- literally, threaten corporations with the power that the State has over them -- they can ride roughshod over just about any attempt to control them, largely due to their huge lobbying budgets and influence with Congress.
4. There are countries where concentrated corporate wealth has overpowered the state's independence, and there are other examples where the state was able to gain control over concentrated corporate power (due to the fact that it's relatively easy to control if you're vicious enough.) Russia In the 1990s/2000s would be a good example of the former, and Russia in the post-Putin era would be a good example of the latter. I would go so far as to argue that the existence of the second version of Russia was to some extent a response to the problems of the first version.
5. Liberal democracy and the rule of law require that corporations *not* be so concentrated and powerful that they can override the normal functioning of democratic government. It also requires that they not be so concentrated and vulnerable that a dictator can take over the functions of the private sector with a handful of flimsy executive orders.
Your first 3 points you use to supposedly to justify your theory that corporations hold all the power are literally talking about how the government can make them do whatever it wants. You are doing a better job arguing against yourself than I am.
Authoritarian governments have historically been excellent at controlling large and concentrated industries. That’s a big part of my point: once you have a relatively high degree of industry concentration, that industry becomes incredibly powerful and the only question is who will wield that power: management (in their own interests) or an authoritarian government.
Insofar as the original topic was about whether industry concentration yields power, we’ve settled the question. I’m discussing the follow-on question, which is “why is concentration of power bad for democracy.” To paraphrase apocryphal-Churchill, we’re just haggling over the price.
Trump is still an idiot, but would it make sense to insist that drug manufacturers don't charge higher prices in the United States than they do in, say, France, Japan, or any other country with a GDP per capita of over $30,000? (With one of the goals being *higher* drug prices in other countries, so that they pay their fair share of the R&D expenses.)
You could try it, but I would assume one of:
1. Drug companies are forbidden by law to charge more in those countries, so they would be forced to stop selling entirely.
2. Drug companies are already charging the most the market will bear, such that the decreased sales from increased prices would reduce their profits.
In either case, it seems you'll get other countries contributing less, unless 1 is true and you strong arm them into relaxing regulation.
I think something a lot like 1 is the case in a lot of countries, and they actually might relax price controls (or allow their health care systems to pay more) if pharmaceutical companies can credibly threaten to refuse to sell at the price that country demands.
A President Trump or Harris can insist all they want, but they can’t set what prices companies charge for their products in other countries. Novo Nordisk sells Ozempic at whatever price the market will bear in the US or in Denmark. It’s a Danish company and if Trump adds a tariff he (actually Congress has the tariff power, but he usurped it) can make it expensive to import, or Congress can pass a subsidy, but they can’t force a foreign company to change what prices it charges in other foreign countries.
Exactly.
I think the most convincing explanation for the tech job bust is exuberant overhiring during the pandemic (when we all believed in a remote work revolution, and when startup valuations became inflated) followed by panicked layoffs once a) interest rates went up, and b) companies decided to cut costs and redirect the money to AI development.
The impact of AI tools themselves on developer productivity is still too small to explain the magnitude of difference.
As price controls go, it seems like drug prices are up there as an area where it may actually be a good idea, and you can't just resort to the Econ 101 counterargument. This is not exactly an area driven by market forces.
Not only do patents mean that drug makers have legal monopolies on many drugs, but even off-patent drugs are often effective monopolies due to the high capital costs and low marginal costs associated with producing many drugs, making market entry a risky prospect. This also means that, while price controls may drive down innovation, they are unlikely to lead to shortages in the same way that price controls on something like toilet paper might. Instead, in most situations, the manufacturers really can and will just take a smaller profit, because the alternative is usually no profit. It's comparable to utilities, another area where we have legal/natural monopolies combined with price controls.
Beyond that, insurance means that people often don't even know what they are paying for the drugs (how many think drug prices are the co-pay?). They also don't directly feel the price of the drug, as the only feedback they get is higher premiums, or even just lower wages due to their employer paying higher premiums, and you feel those indirect costs whether you chose to purchase the drug, or if someone else in your risk pool did so.
This is obviously a bad idea if it's just the camel's nose to other price controls, but there are non-trivial arguments that price controls on drugs make sense.
Couldn't France's price surge be because they're all connected to the same energy grid? Which would be solved if all countries on said grid (such as Germany and the UK) stopped their ongoing energy-seppuku?
I admit, I'm siloed enough that I have not seen this very reasonable critique of force-lowering drug costs before. While it's pretty convincing, I'm curious if anyone can explain what the alternative would be. Having to spend a huge proportion of your income on medicine is, to me, simply morally unacceptable in a rich society--is there a way to correct that which doesn't have the negative results Noah outlined here?
Most countries regulate the bulk purchasing of drugs. The US is the outlier. It’s reasonable to assert that US profits were buttressing the R&D that everyone else benefited from.
“Limiting these companies’ market size by limiting the prices they can charge will result in less research spending, and ultimately fewer new medicines and treatments.”
My question is what other incentives and mechanisms can be put into place to further drug innovation. More public R&D seems like a no-brainer.
This is another idea:
“Since reforming its system in the early 2010s, Germany has allowed manufacturers to freely set prices for a limited period when bringing new drugs to the market. It then uses the data available from that period for a nongovernmental and nonprofit research body to evaluate the benefit provided by the new drug, as compared to existing alternatives. This added benefit, or lack thereof, then serves as the foundation for price negotiations between drug manufacturers and health plans.”
https://theconversation.com/why-the-us-has-higher-drug-prices-than-other-countries-111256
“My question is what other incentives and mechanisms can be put into place to further drug innovation. More public R&D seems like a no-brainer. “
While probably a decent idea, I think the real expensive parts of drug development are actually finding the drugs that pan out once targets and research have been identified and doing the efficacy and safety trials. I doubt the public sector is going to finance all that.
Pharma's argument that they needed to sell drugs for high prices in America to fund research was always flawed. Most of the breakthroughs came through government funded research that was basically gifted to pharma.
It has been true for a long time that most medical research in the US is funded by the government through the National Institutes of Health (NIH), which is the largest public funder of biomedical research in the world.
But, trump just cut billions from NIH. Trump's price controls won't hurt innovation as much as his cuts to NIH will.
"Pharma's argument that they needed to sell drugs for high prices in America to fund research was always flawed. Most of the breakthroughs came through government funded research that was basically gifted to pharma."
The basic breakthroughs and target may come from basic research, but someone still needs to find the compounds, get everything working, get it through trials and regulatory clearances which is where the bulk of the expense is.
The manufacturers bear the major cost of bringing a new drug to the market. In this situation, the first dose costs $1 billion, and the second dose costs $0.50. If the manufacturer is not protected so they can recoup the development costs, the drugs won’t be brought to market.
Some would applaud that outcome, but I’m not one.
It's simply incorrect to say that it’s immoral to have cost be a factor in what healthcare people receive. Healthcare is not a free good. There are trade-offs between it and other needs. The only way to know how much healthcare to buy compared to water, food, shelter, education, etc., is through prices.
I'm certain that a comprehensive R&D plan could help with this. Unfortunately we're pairing this policy with a massive reduction in NIH funding, so it's hard to see good outcomes here. (Unfortunately they will be short-term *popular* outcomes, and the costs will be born by the next administration.)
This is one field where AI has been extremely useful already - it has greatly increased the rate at which we can identify new potential organic molecules with the likelihood of providing the desired effect.
Hope so!
"Having to spend a huge proportion of your income on medicine is, to me, simply morally unacceptable in a rich society."
That's really dumb.
Baumol's cost disease? Labor intensive sectors of the economy (such as health care and education) get more expensive and take up a larger percentage of GDP because everything else gets (relatively) cheaper and more productive.
If it’s morally unacceptable to not have to pay a huge proportion of income for drugs, what about for other medical care? Other countries have “free” healthcare but it is subpar and comes with long waits and rationing, so the alternative to high prices is reduced supply.
This really isn't what I wanted to talk about but I'll bite: I've spent most of my adult life living in other countries. There's excellent state-subsidized healthcare available for free here, and there's plenty of bad healthcare that people pay huge amounts for in the United States. Rationing and wait times depend on the system we're talking about, but money is another way of rationing, and plenty of people wait huge amounts of time in the U.S. for care. Neither system consistently offers "the best" care. In one, people who are lucky or can afford it get access to extremely good care that would be available nowhere else (I mean experimental treatments, that kind of thing). In the other, everyone gets access to a baseline of care and no one lives their lives terrified of what happens to their family if they get cancer. Both systems have drawbacks, and positive, so I make my judgement morally on which one is "better."
Noah- great column as always (these are my favorite). For the pharmaceuticals, I get your argument that more profit for pharma more innovation, but that can’t be the only conclusion that is acceptable here… obviously.
Other countries do pay much less than us (notably Europe) and as Mark Cuban and others advocate for, that is something we should aim to change. So, while I’m sure with all things Trump this has been done ham- handed, I at least can agree with the goal
Then why did he reverse the previous attempt by Biden to lower the cost of medicines (https://kffhealthnews.org/morning-breakout/hours-into-presidency-trump-rescinds-attempts-to-lower-prescription-costs-rolls-back-some-aca-rules/)? Unless the goal is to punish other poor people across the globe, see the costs for medicine rise in general or have the US not lead the way in biotech, as usual Trump is the wrong answer to very real problems.
He reversed it because Biden was the one that did it. He didn't need another reason.
Well, we may be about to find out just how much all those countries were free riding.
The Tech job bust is interesting - I would bet that there is still a lot of demand for tech roles outside of the IT sector. My hope is that deploying all those tech workers to other industries will help push them to improve their productivity...
This post is a huge miss on the health aspect.
Trump's executive orders are nonsense, but there is no attempt to actually look at how health financing, health procurement, and drug development work.
Noah Smith takes it as gospel truth that the number of patents is translating into better patient outcomes.
In every other advanced nation on the planet, there is something called "Health Technology Assessment". This is a government process where drugs wanting reimbursement from insurers or government providers or what have you, need to show to a government body that the cost they are putting on the drug is justified.
China does this. Japan does this. The Netherlands does this. Germany does this. Canada does this.
This isn't some massive anti capitalist scam that popped up from progressive overreach, this is how modern universal health systems have functioned the world over for literal decades and there is no mention of it.
According to Statista, (search for "Global health expenditure by country in 2018 and forecast for 2028"), 35% of all global health dollars in 2018 were spent in the US, with 41% likely to be spent in 2028. That is insane, the US is less than 5% of global population, but we spend so much more money.
Our drug costs are 3 to 10 times greater than peer nations. I worked in health care consulting on market access and pricing for years for these big pharma companies. I worked with Sanofi, Roche, Abbott, Takeda, on big projects for billion dollar drugs. Never once in all that time did I ever see a "cost of production". The word is value based care. They will charge what the market and governments will let them get away with.
When you wrote about tariffs, you rightly pointed about that Americans weren't going to be willing to pay 6000$ for a us produced iPhone. However, thag is exactly the situation we have with pharmaceuticals in the US. Companies can just say that a drug which costs 10$ a dose to produce in a Dutch factory will be sold at 1,000$ a dose in Germany, but 10,000$ a dose in the US.
HTA systems in other countries are designed to allow a premium for improvement or novelty or better patient tolerability. It's a huge field. That the US does not have such a system is a massive scandal.
Another thing to keep in mind is that of what Americans spend on drugs 90% is on generic drugs, for which our prices are lower than many countries.
https://marginalrevolution.com/marginalrevolution/2024/09/the-us-has-low-prices-for-most-prescription-drugs.html
The USA is rich, and of global spending on airlines 35% is also from the USA, on hotels 30%, restaurants 25% and automobiles 20%; so 35% for drugs is not too far out of line. Actual spending on total healthcare is 40%, so that is the one where the US spends the most.
If what you say about the inherent “correctness” of foreign drug pricing is correct, I’m not sure why you object to MFN drug pricing. In essence it is letting those foreign pricing regimes set the market. Kind of like dollarizing a foreign currency—you’ve given your monetary decisions to someone else.
Disclosure: I have been a Berkshire-Hathaway shareholder for 25 years. Buffett was able to ignore the whims of Wall Street as he structured the company after the failure of the textile company. He focused on the long game and not quarterly earning such as most companies and never engaged in the type of financial engineering that Jack Welch did at GE. Buffett also recognized the value of investing in insurance companies and the 'float' that they provide. Over the years he made a couple of bad investments but not many. I'm still wondering why he sold off half of the BYD holdings given how the company has become the premier manufacturer of electronic vehicles in the world.
"In any case, I wonder if this protracted quiet tech bust is a significant factor in the emergence of the Tech Right."
This is an interesting take but misses the mark IMO. You need to differentiate the tech executive/VC class and tech employees, as well as between Big Tech and Little Tech interests. Plot these on a 2x2
I would guess that:
1) Big tech employees are probably the furthest left of all four quadrants, yet they are the ones hurt by the tech bust the most
2) Little tech executives probably had the strongest shift toward the Right. These folks are the ones that stand to benefit most from AI disruption and downward pressure on employee salaries
If you ask little tech executives why they switched political sides in 2024, they'd likely say this was due to Biden/Harris support for DEI, inept policy around AI and crypto, and a very anti-M&A stance - all of which has been a drag on the innovation cycle in Silicon Valley.
This is still very simplistic - there's tons of overlap between Big and Little tech interests, and what type of tech probably matters a lot (crypto and climate tech leanings are probably pretty different), but may be a useful starting point for understanding "Tech" politics a little more precisely.