Bryan Caplan  

Dan Klein on the Econ Profession

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When Dan Klein dissects the economics profession, he manages to be simultaneously thoughtful, blunt, and fair:

My view of the matter, in the broadest terms, is that human culture generally, and in particular Anglo-American culture since the great transformation epitomized by the passings from President Cleveland to Presidents Roosevelt, Wilson, and Roosevelt, and from Prime Minister Gladstone to Prime Ministers Asquith and George, has numerous strong biases that tend toward the under-appreciation of liberalism. Plain talk of liberty and coercion are indeed matters of great taboo. But that does not mean that such ideas are not playing a fundamental role in people's thinking and judgments. The taboos and biases propel the establishment of very bad policies, which are culturally protected by notions that will not, upon responsible scrutiny, pass muster on customary standards of social betterment - for example, in my view, drug prohibition, occupational licensing, the prohibition of cash payments to organ donors, and the restrictions administered by the FDA make us less healthy, less wealthy, and less secure. I see the taboos and biases as so deep and pervasive that I do not expect even on-record economists to arrive at and state plainly good judgment on the root matters of the issue. Still, liberal enlightenment works to check the train of folly, and, I find some topics on which most on-record economists still get right the direction for reform. Thus, in my view, it is not likely that scholars who bear the responsibility of going on the record would come to conclusions that are less liberal than those of the general public or its subgroup, economists at large.

If, then, we accept the idea that there is among economists a forsaken-liberty syndrome, illustrated by several of the DERAC papers, and we ask why it exists, the answer, I say, must be but a part of a much larger discussion about why the vast majority of people vastly underappreciate the presumption of liberty. Economists at large are but part of a much larger problem, and the diagnosis would reach far beyond their precincts. Many economists operate within and are the products of cultural ecologies enveloped by the apparatuses of government intervention, and their work should be interpreted accordingly.

Consider the American Economic Association. It is an establishment-oriented, professional organization, and as such it is normal that it would be oriented toward the status quo. We should not expect that it would elevate those who think that many government agencies and interventions are wrongheaded at root and should be abolished. Moreover, the AEA is run by elite academics. My impression is that in the matter of ideological sensibilities the economics profession has been trending toward the academic norm, and that it will continue to do so. Also, we should bear in mind that many or even most of the founders of the AEA were progressives, nationalists, or social democrats (on Richard T. Ely, see Thies and Daza 2011).

Enlightenment has a force of its own, and sometimes it will match the forces that work against it. Just as Bentham eventually carried the day on ceilings on interest rates, latter-day and, alas, now dissident liberal economists have no doubt altered the balance between the presumption of the status quo and the presumption of liberty, for example on international trade, agricultural subsidies, drug prohibition, school vouchers, and conscription. Perhaps economic enlightenment will spread on some issues, such as sports subsidies, organ policy, occupational licensing, and the FDA.

But it would be foolhardy to suppose that academia provides a setting in which enlightenment has the upper hand. Surely the minority who uphold a presumption of liberty will remain vital and make their voices heard, but their discourse might still be regarded as a sort of dissidence. Even in the heyday of the liberal era, William Gladstone in 1878 sized up academia as follows: "I trace in the education of Oxford of my own time one great defect. Perhaps it was my own fault; but I must admit that I did not learn, when at Oxford, that which I have learned since, viz., to set a due value on the imperishable and inestimable principles of human liberty."

(notes omitted; from the conclusion to "The Forsaken-Liberty Syndrome")


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COMMENTS (11 to date)
kwesi writes:

Bryan (or anyone) please explain the assertion that the FDA hurts the people rather than helps. I've heard the point oft made but I haven't seen a rationalization yet. Thanks.

Kevin writes:

kwesi,

The FDA hurts people by delaying the roll-out of life-saving and quality-of-life-enhancing medications and devices unnecessarily. For instance, suppose that there were a cure for some disease that kills 5,000 people per year. For every year the the roll-out of the drug is released, 5,000 people die. So when the FDA delays the drug hitting the market by, say, five years (which, I bet, is being generous to the FDA), it costs 25,000 lives. These deaths are invisible ("the unseen", as Bastiat would say) and so not regularly counted in cost-benefit analysis of the FDA.

Then there's simply the moral question of why individuals are denied the right to make risk-benefit choices about their own health, but that's a separate issue.

JB writes:

Kwesi,

While I agree with Kevin, I think he left something out.

Why does the FDA restrict access to potentially life-saving drugs? Because they might not be safe or effective. Because they might do more harm than good. The FDA is compelled to be extremely conservative and careful.

And for a lot of drugs, this is probably a reasonable strategy. The one case where it fails, rather dramatically, is in the case of people who are going to die soon. For these people, the "downside risk" of a drug failure is exceptionally low. If I've got cancer, and I'm going to die in 6 months, I don't care if the drug might give me stomach cramps or hair loss or heart palpitations. The FDA has made some tentative steps in trying to address this problem, but they are not moving very quickly.

In addition, there's the concept that adult humans should be capable of making their own decisions about these risks. That I, in consultation with a doctor, should be able to make these decisions, accept the risks, and accept the consequences. But modern government spends a lot of time and energy trying to protect people from the consequences of their actions, and they primarily do that by trying to prevent the actions in the first place.


Andrew writes:

@kwesi

Since this is an economics blog, I will answer it in an economics fashion.

Rank these parties in order of who has the greatest incentive to make sure a drug is safe/effective?

a) The consumer
b) The supplier
c) A third party (FDA)

RPLong writes:

Andrew - That was brilliant.

FredR writes:

"My view of the matter, in the broadest terms, is that human culture generally, and in particular Anglo-American culture since the great transformation epitomized by the passings from President Cleveland to Presidents Roosevelt, Wilson, and Roosevelt, and from Prime Minister Gladstone to Prime Ministers Asquith and George, has numerous strong biases that tend toward the under-appreciation of liberalism."

How does the utter collapse of the temperance and prohibition movement during Roosevelt's presidency fit in this story, particularly when you want to use drug prohibition as one example of this trend?

roystgnr writes:

Andrew:

Ideally, we want incentives to be aligned such that a drug is allowed and recommended as soon as the expected quality of life added by that drug is positive and the expected benefit of delaying for further study is negative. The incentives against Type I errors and Type II errors should match: approving a drug that causes N quality-adjusted life years of harm before the approval is finally rescinded is no better or worse a mistake than denying a drug that would create N QALY benefit before a more cautious approval would have been finally granted.

Ranking decision makers in descending order:

The consumer's incentives are aligned with the true incentives. As we'd expect - the consumer is the one receiving the benefit, after all! If the consumer was fully informed and rational we wouldn't even want to consider restricting their options.

The supplier's incentives are misaligned toward releasing unsafe drugs too early, unless this is corrected via legal liability, in which case the incentives may become misaligned in either direction depending on the level of legal risk and punishment.

The FDA's incentives are misaligned toward failing to release safe effective drugs early enough, unless public opinion changes to become more sensitive to that category of error, which it hasn't yet.

Kwesi writes:

Thanks Andrew. Good points, but suppose a drug company releases a drug that does cure a certain illness. But say, it contains some other chemical that causes another affliction down the line. That clearly is an undesirable externality. Information is asymmetric - the company might want to reap short term profits at the risk of the customer. Doesn't there need to be a correction for this?

Jim writes:

Mr. Klein makes his case much more kindly than I would.

The social sciences in general are failing us. Szasz's critique of psychology is fundamentally sound for social science in general; it is essentially a morality play, and a very left leaning one at that.

It appears government funding of mental exercises generally unlettered by reality breeds big government proponents. Who would have guessed?

kiwi dave writes:

Intriguing, I think I will read Prof. Klein's book.

I know it is petty, but I must tell you how much of a breath of fresh air it is to read a work by an American using the word "liberal" in its true (rather than purloined) sense. Let the reclamation continue!

James writes:

Kwesi,

Right now, the government doesn't have an agency to regulate what ideas are made available to the public. Right now, someone might publish ideas that have good short term consequences but bad long term consequences. If you don't see this as a reason for the creation of a government agency to regulate ideas, then you can't consistently see the possibility of drugs with long term side effects as an argument for the preservation of the FDA.

If you are asking about a world where the FDA went away and only drug companies responded to the new set of incentives created by the FDA's absence, there would be some increase in the availability of unsafe or ineffective drugs. That might still be better than the world we live in now because there would also be an increase in the availability of safe and effective drugs which currently don't make it to market as a result of the FDA.

But it's unrealistic to assume that only drug companies respond to incentives. Suppose the FDA gets shut down tomorrow. If the FDA's former employees actually have skill distinguishing good drugs from bad, they could publish a list of drugs that they would keep off the market and sell this list to doctors, hospitals, end users, etc. You could buy this list and get the full benefit you now get from the FDA without forcing other to lose access to the drugs that the FDA keeps off the market. At the same time, other companies might enter into the same business and consumers would then reap the rewards of competition as multiple drug evaluation companies worked to build reputations for skill in identifying which drugs work better than others.

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