Comment by frgtpsswrdlame | Hacker News Reader

Comment by frgtpsswrdlame | Hacker News Reader

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>The interesting thing to note that the company in the article, Alexion, is not even an unusually lucrative company. In 2015 its operating income was $536 million on 2.6 billion of revenue, or about a 20% operating profit margin.

...what. 20% margin isn't good nowadays? And why on earth are we comparing this company to a tech giant, they're not in the same world when it comes to how they operate. Of course google's going to look better in a lot of these terms, it's google (and i'd argue a monopoly). I mean at what point do we say, actually these biotech companies are plenty profitable? There's so much handwringing about how if we hurt these companies in anyway then all these sick people will die. It's just not true. Why don't we take the S&P 500, a Biotech Index and ALXN and put them on a chart:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&...

Well damn, looks like despite all their huge R&D costs, only 20% margins, so on and so on they are doing pretty damn well. Honestly, are we looking at the same chart? These companies are MILKING sick people and we're afraid to intervene. Markets don't work in life and death scenarios because people would pay anything. This is a case that begs for regulation and even with it these companies are going to be just fine.

In a world where investors invest in photo sharing apps and social media websites because of the potential billion dollar payouts - why would you limit the potential drug payouts without limiting the social media app payouts?

Over time, would limiting the potential profits in life-saving drugs increase or decrease the number of life-saving drugs developed?

In an economy where people can choose to work in any field, and investors can choose to invest their money in any field - what better way is there to allocate the people and money resources than by letting people voice how valuable something is with their wallets? Do you want to force someone to buy a third car instead of buying a new drug treatment?

If you understand the invisible hand theory (actually understand it, not just the everyman's definition) I think it's difficult to (a) argue against in general and (b) argue against for certain life-saving industries especially.

Actually, horror of horrors, if I could I'd take a giant antitrust bat to about half the technology sector (which would hurt profits).

I urge urge urge you to reevaluate your understanding of economics as well. I recently made a book recommendation on here, I'd like to make it again.

23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

Economism by James Kwak

And no it's not at all hard to argue against the invisible hand theory although I'd really like to not do that here. But just consider how far physics has advanced since the 18th century, why don't you think economics has done the same? Just think about what you're actually proposing for a second. There are no scenarios where the invisible hand works against laypeople? I think that's incredibly naive.

I've recommended to plenty of people that they read "Principles of Macroeconomics" by Greg Mankiw, but weirdly enough no one has. Maybe I just didn't urge urge urge them enough?

Actually, if you believe economics hasn't changed since the 18th century you really should read it. Who knows, maybe you'll even reevaluate your understanding of economics.

Principles is the exact wrong thing for someone casually interested in economics to read. It's the proliferation of the belief that Econ 101 is "real econ" when it's anything but. You can get an undergrad degree in Econ and still have no real understanding of how the economy works. Sure you'll have a simple model but that model will fail over and over again because it's far too simplified. That's why I recommend Economism. It's inoculation to Econ 101.

Please enlighten us as to how your non-mainstream model is superior. The burden of proof is on you.

Also, your claim that economics hasn't advanced since the 18th century is absurd and betrays an ignorance of the subject.

ECON101 isn't 'mainstream economics'. It's incredibly simplified economics.

>Also, your claim that economics hasn't advanced since the 18th century is absurd and betrays an ignorance of the subject.

Perhaps it was worded poorly but if you reread you can actually see that's the opposite of what I said.

I don't really care if people understand "real econ" (whatever that means) but most people haven't even progressed past a folk understanding of economics. Having at least a cursory understanding of why, e.g., price controls lead to scarcity is really a requirement to create an informed criticism of any part of Econ 101. To get to that point, reading through an intro level textbook is exactly what is needed.

Of course absence of price control mechanisms can also lead to scarcity through bubble mechanisms - which can be tamed through taxes.

Ask anyone trying to buy a house in Vancouver.

Does Mankiw mention this in his "requirement for informed criticism"?

>Does Mankiw mention this in his "requirement for informed criticism"?

Are you honestly asking whether Mankiw discusses supply/demand price effects in his textbook?

Prices are high because demand is high and supply is low. Yes, that gets covered.

>but most people haven't even progressed past a folk understanding of economics

There are a few subjects where the average HN denizen thinks they know more than the professionals by having read a mainstream book or two. Economics is one. You can identify these people when they ask, 'How come economists couldn't predict the crisis?'

I just don't buy that. Despite being less popular in academia there is absolutely an abundance of politically motivated libertarian/austrian/chicago school blogs, videos and books out there. Many intelligent young people fall down this rabbit hole early and never try to get out. Econ 101 books are only going to solidify their belief that they know economics. Something that challenges the simplified view of economics, that asks when the assumptions of some of these models ever actually apply, about what happens when you start dropping assumptions, about frictions and so on is what's needed. I looked around a bit to find the best article I could from my perspective, maybe you could read it and tell me what you think?

https://www.bloomberg.com/view/articles/2015-11-24/most-of-w...

Any libertarian who takes Econ 101 will find their beliefs challenged tremendously, and not just by the "simple models" you're talking about. To be perfectly blunt, it sounds like you're trying to criticize something that you have an preconceived notion of, but no direct experience with, which is exactly why I was recommending you read Mankiw in the first place. I think you'll be surprised with the amount of time he spends on things like case studies of market failures or why the federal reserve system is a good idea.

As to your link, Noah (whom I respect tremendously) does make a good point, but I think he overstates his case; true, simple supply-demand models don't work in every case (and the minimum wage is a good example of that, although I would counter that most of the non econ101 parts are somewhat short term and restricted to small increases) but for the vast, vast majority of cases people encounter in real life they work surprisingly well. Additionally, supply and demand is only a part of econ 101: Why can't I get tickets to Hamilton without paying a lot? Why do some restaurants charge more for dinner? If we put a tariff on Mexico, who pays? What are the pros and cons of free trade? What does deadweight loss mean? What does the federal reserve do and how does it affect me? What's the relationship between the money supply and inflation? What are the arguments for targeting non zero inflation? Why did we leave the gold standard? Is government debt bad? How is GDP measured? Why does the exchange rate change? Why doesn't the employment rate go to zero? What does the employment rate even mean? How do taxes affect the economy? Do different taxes have different effects? What are the arguments for and against using tax policy to encourage saving? What options does the government have to fight a recession? My city wants to reduce driving downtown, what are some possible policies? What economic policies can we use to fight global warming? What are the arguments for and against rent control? What is a monopoly? All of these questions are easily answered with macroecon 101 level knowledge and most are hard to answer without (we haven't even started talking about micro!) That doesn't mean econ 101 is always applicable, but it does mean you'll have a far better understanding of the world after taking it, even if you do come in with some preconceived notions.

I will say that Noah's suggestion that econ 101 should be more emperical is a good idea, and I especially believe that there should be a stronger emphasis on stats. I actually think that's true of all the social sciences though, and its a separate issue from what you're talking about.

>To be perfectly blunt, it sounds like you're trying to criticize something that you have an preconceived notion of, but no direct experience with, which is exactly why I was recommending you read Mankiw in the first place.

I don't believe it counts for much but I do have an B.S. in Econ which is to say I have crawled through Macro 101 books and 102 and 200 and so on so I'm aware of what's in Mankiw's book. I would also say that I have no idea of your economics education and I'm not trying to measure dicks here. You may well know more than me, my argument is purely about how to get laypeople to better understand a field I love.

>All of these questions are easily answered with macroecon 101 level knowledge

No! Absolutely not.

>Is government debt bad? ... How do taxes affect the economy? Do different taxes have different effects? What are the arguments for and against using tax policy to encourage saving?

Specifically these questions, the ones in your list that are most likely to come up in casual political conversation are not answered by Econ 101. And other incredibly common political topics like antitrust, minimum wage, other tax questions, wage gaps, welfare, international trade will get no meaningful answer from 101.

Economics is the one field of study in America today where someone who reads three blog posts thinks they're an expert, someone who reads one book, and so on and so on (NOTE: I am also not claiming at all to be an expert. I actually believe that undergrad econ is, unfortunately, a waste of time). My point in encouraging my books (I'm not sure I have the correct language for the point I'm trying to make here so forgive me) is not to make a positive correction and "get people to actually understand economics now" because it's not that simple and frankly 99.9% of people will never understand it because they'll never put in the time to. My books are to encourage a negative correction where people are willing to say "I don't understand economics" just like they'll admit they don't understand programming or physics or psychiatry or anything else. Because there's a lot of people that don't know dick about econ and they're unwilling to admit it. People need to be exposed to complex market failure after complex market failure after complex market failure so they understand the simplified understanding they gained in Business Economics or mises.org is not the real world. Noah doesn't overstate his case he states it exactly right (and much better than I have here).

To reiterate: Most people's thinking on the minimum wage hasn't progressed past "if poor people got paid more they'd be better off, therefore raise the minimum wage." Many people's thinking on walfare haven't evolved past "I don't want to give money to lazy poor people". Sure, someone who's taken Econ101 may not have the ultimately nuanced opinion, but at least their understanding is going to be far closer to reality than someone who hasn't. The ideas in 101 are simplified, but the truth is that they're almost certainly better than whatever was in the person's head before, even if they aren't a complete description.

That being said, if you haven't read Mankiw you really should. He goes into far more detail than you seem to think, on many of the exact subjects you listed. Maybe econ101 has progressed since you last took it.

> Economics is the one field of study in America today where someone who reads three blog posts thinks they're an expert

Ha. It's funny how many fields think this way. A friend of mine who's an MD in sports medicine says the same thing ("People read one exercise book and think they know everything!"). Another friend of mine says the same thing about law. Another says the same about foreign policy. Etc, etc, etc.

If your goal is to get people to people to stop pretending like they know econ after reading one pop-economics book, well I don't know what to tell you except that in all likelihood human nature isn't going to change; people have been overconfident about things they don't know "dick" about since the beginning of human history and probably will continue to do so regardless of whether they read your books or not.

By the way, if you really believe that exposure to "complex market failure after complex market failure" is really the answer, there's plenty of places on the internet that do just that. Go to /r/latestagecapitalism or /r/socialism and observe all the nuance and humility that results. In reality, people just as readily end up overconfident in the opposite direction.

Mankiw is a bit of a right wing nutjob, though orthodox in the Chicago school. I wouldn't recommend his books, despite their prevalence in academia.

>if I could I'd take a giant antitrust bat to about half the technology sector (which would hurt profits).

That'd be nice on an island. Otherwise, have fun competing against technology behemoths from other nations, some receiving subsidization from the government.

I think where we probably agree is that the patent system (which is of course what grants the monopoly pricing power) needs reformation.

I think where we disagree is that I don't think I (or anyone else) knows how much resources society should spend on drug treatments. I strongly believe that the best way to determine how much money society should spend on drug treatments is just to let all the individuals decide how much they should spend on drug treatments (or insurance which covers drug treatments). (This is not saying, however, that you can't have transfer programs which transfer wealth from rich->poor)

In the end, the failures of central planned economies are the same as the failures of central planned sectors, including healthcare.

I think here's the issue, an individual can only decide to spend on a life saving drug treatment if it exists.

If your choices are to take a drug or die obviously you will do whatever you can to pay, but that hardly means the price is reasonable.

You know you are correct. When a photo sharing app sells for billions everyone interviews the founders and praises them. When you save 10 lives and charge billions you are a criminal. I am not sure which one is right or wrong, but it certainly isn't fair to the drug makers.

You summarize my feelings exactly, in a very clear way that demonstrates the absurdity of the situation.

In a vacuum it appears absurd, but to understand why people feel this way, you have to look at the big picture of health care costs spiraling out of control and people literally having to choose between food or meds. Middle class people without health insurance and good retirement savings can end up in poverty because of an unexpected illness. Any attempt at health insurance reform gets twisted and maimed into baseless political showboating—I know several people who voted for Trump because they actually believe he can lower their health insurance bills, the fools.

When people think of a photo sharing app they are thinking of breezy fun social media times. When people think of rare disease treatments the sentiment is much darker a priori. I'm not saying drug companies are to blame for the current situation (hate the game not the player), but emotionally it's obvious why there is judgement about profiting from that situation.

The problem with the typical person's view of this issue is that it confuses two very different things: price and affordability. Drugs should be priced at a level such that pricing them higher doesn't create enough additional benefit from new drugs to outweigh the extra cost, and pricing them lower causes loss in the benefit from new drugs to outweigh the savings from lower price. That should be decided at a society-wide level.

Affordability is then about transferring money from rich people to poor people so they can buy the appropriately-priced drug.

Well - technically affordability would be more about not transferring money from poor people to rich people without an exceptionally good reason.

A common problem with these arguments is the assumption that they take something from the rich. The reality is the cycle started earlier, and redistribution is a necessary correction to that, not an outrageous and immoral imposition on a presumed natural order.

There is no economic system in which the skilled educated labor necessary to create these drugs can be compensated by what money you can get from a relatively small number of poor people with s rare disease. You cut $300,000 per year for treatment to $30,000 per year, and this company is operating at huge losses. And it's still not affordable to even normal people.

When a photo sharing app sells for billions everyone interviews the founders and praises them.

In most of these cases, they've sold something for billions to a single entity that has the money and doesn't strictly need it (for example, if Youtube had not sold to Google it would have been an existential crisis for Youtube, not for Google).

When you save 10 lives and charge billions you are a criminal.

In these ten sales, you've made billions by charging each of the individuals 1/10th of the billions, individuals who don't have the money and do strictly need it.

There's a difference between "sells for billions" and "charges billions": in the former in the case of photo sharing apps, it's a buyer's market, and in the later it's a seller's market.

The founders, the sellers, might get praised in the event of a billion dollar photo sharing app sale, but few have sympathy for the purchasing party in that transaction, no matter what they paid, because it's a buyer's market.

I'm not sure fair, to the drug makers or otherwise, enters into it. These are not really that comparable, and only appear to be due to the scale of the sales both being "billions".

It's not that 20% isn't good. It's that, this drug costs $389,000 a year and they are only making 20% margins. So, even if they were a nonprofit they would still have to be charging $311,000 a year to break even. You can argue they shouldn't be profitable, and OK even if that is granted, that still wouldn't make these rare drugs cheap.

When money shouldn't be an object in the equation it should be removed from the equation.

This is work that should be done for public benefit by public benefit organizations.

In other words, universities should be where this kind of treatment is developed and tested, AND the regulations that make normal drugs so expensive should apply differently (and relate heavily to a LOT MORE public disclosure and real peer review).

> When money shouldn't be an object in the equation it should be removed from the equation.

We all believe it's important to save lives.

If it costs $300k to save one life, but in other disciplines or other areas of medicine you can save a life for $5k, then you have a problem that is not solved by simply ignoring money.

It doesnt matter where you move the money, its always in the equation.

That's a good hypothesis. How about someone suggests that Harvard, with its $36B endowment, tests it out? Pick a rare disease, ask Harvard, or any similar institution, to tackle it with their world class medical school and research capabilities. Offer them gov't matching funds. Or threaten their tax-exempt status if they don't do it. And let's see how they do.

Maybe a socialized or non-profit R&D program would do better than big biotech companies, but before we legislate this idea, how about we test it? My concern is that a non-profit/gov't drug development program will work as well as the ACA's $2B website.

I get hives whenever someone suggests pharma companies are "too" profitable. My daughter is alive today because these "greedy" pharma companies have developed chemotherapies that beat leukemia 90+% of the time. A 20% margin for these companies that regularly produce miracle drugs seems totally fair. Pharma is the closest thing we have to magic in the modern world.

I'm open to the idea there are better possible systems, but the burden of proof is on your side, not the side that regularly cranks out life-saving medicines like the goose that lays the golden eggs.

I take an orphan drug myself to treat cataplexy/narcolepsy. I think the costs are around $60k to $80k per year and I'm of the exact same opinion as you. I have treatment today because we allow them to make a profit, and I'm only willing to try an alternative system when we prove through experimentation that this alternative system will actually produce as many treatments for orphan diseases at a cheaper price that makes the treatment available to more people.

Without the US healthcare system, my treatment simply would not exist. My treatment exists in no other country in the world.

Eventually, those that don't have insurance as good as mine will benefit from these drugs once the patent expires. It sucks that many people won't benefit until that happens, but under the alternative system SJWs are so keen to promote my treatment would never have been developed and I couldn't get this treatment at any price and no one in the future would get it either because their wouldn't be a treatment for a patent to expire on.

At the end of the day, the US is practicing "socialist" healthcare. It's socialist in the sense that it pays for a lot of the R&D that the rest of the world benefits from. 40% of the entire output of medical research globally comes from the US alone.

Money is the common unit we use to deal with resource scarcity. As long as there's more demand for care than care to go around, money will continue to be a part of the equation.

> When money shouldn't be an object in the equation it should be removed from the equation.

Money is just a proxy for goods and services; in this case a proxy for having a bunch of highly skilled scientists and doctors work for years to treat a disease only a small group of people have. Having a public benefit corporation rather than a private company doesn't fundamentally change that dynamic.

As to regulations: at bottom, all they really require you to prove is safety and efficacy. If there was a cheap way to prove safety and efficacy, drug companies would just do that on the front end, and send only working drugs through the clinical process. But most drugs don't actually work; most actually fail clinical testing, many after they've made it pretty far along. If you get rid of that testing, and the safety and efficacy data that comes from it, what exactly do you disclose to the public?

Sounds like they spend a lot of money on questionable "marketing". Also, one never knows where the true profits are recorded in the days of ubiquitous tax avoidance.

I'm not certain that marketing plays that huge of a role. They make the only drug on the market to treat hemolytic uremic syndrome, every medical student has to learn about it. Must be some other costs, or hiding of true profit as you suggest.

Sunk costs on failed treatments, generally. I don't remember the stat well enough, but it's something like a double-digit quantity of candidates fail for each single one that receives FDA approval.

Here's hoping someone else can investigate and share the exact number. I'm at a stoplight.

Gah those numbers don't work like that!! Alexion is a monopoly because of patent law, they are maximizing profit but they maximize profit in $ terms, not % margin terms. Alexion currently spends tons and tons of money on sales. Those sales expenditures only have to yield the slightest profit for them to partake because they don't give a rats ass about relative margins, only absolute profit. These lower profit activities bring the % margin down but overall profit up so the company engages in them. You can look at basically any drug and see that margin on it as a standalone is going to be incredible, they're super cheap to manufacture and you can charge as much as you want while it's under patent. If we limited the cost to $311,000 expenditures would be cut very slightly, the operating margin might move a bit but it would stabilize and they'd continue to make fantastic profits.

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