“Prize-Grants” or Patents for Pharmaceutical Innovation?

14119837_SOver at the American Enterprise Institute’s online magazine, Arnold Kling has proposed “prize-grants” in favor of patents for pharmaceutical research. Kling dislikes patents:

Patents have always been a problematic way to promote innovation. They raise prices of products far above marginal cost. They impose legal costs involved in obtaining, attacking, and defending patents. They provide an artificially high incentive to develop substitute products that devalue the patented invention. They create an artificial disincentive to develop complementary products, because the high price of the patented product limits its market penetration, adversely affecting would-be product complements.

These drawbacks are well recognized, and a better alternative would certainly be most welcome. The question is: Can there be a better alternative? Kling’s “prize-grant” has the features of both a prize and a patent:

 The prize-grant would differ from an ordinary prize in the following ways:

—The criteria for winning the prize would typically be first suggested by the researchers, with funding institutions then assigning a value for the prize, prior to the research.

—Prizes often would be for incremental achievements, not just for spectacular accomplishments.

—Large pharmaceutical companies and other private firms would be just as eligible as nonprofit researchers to receive prize-grants.

We can think of the current intellectual-property regime in medical research as a grant-prize approach in which the prize is a patent. However, prize-grants differ from patents in the following ways:

—The prize for a successful result is specified by the funding institution. With a patent, the value of the prize is determined in part by patient demand but also by the purchasing rules of insurance companies and governments, by legal jousting, and by gaming of the system.

—Useful research that does not result in a patentable product gets rewarded under prize-grants, whereas under the patent system such research does not get rewarded.

—Regardless of the outcome of the research undertaken in pursuit of a prize-grant, findings would be immediately placed in the public domain. In contrast, patents set a term of monopoly on the use of information, during which the prices of patented products can be set far above production cost.

It is a very interesting idea, which I hope Professor Kling continues to develop. By way of constructive criticism, here are some obstacles that need to be overcome: READ MORE

Tech Companies Work to Tame Patent Trolls without Government Help

patent_trolls_180x270In the wake of Congress failing to pass patent litigation reform this year, the private sector has gotten into gear and has taken matters into its own hands. Tech companies have formed LOTNet. This article from Motherboard sums up this new idea:

As they say, if you can’t go through, go around. Enter the License on Transfer Network, or LOTNet. It works sort of like a non-aggression pact for patent-owning companies. When a member of the network sells a patent to a non participating company, the company selling the patent will automatically extend a royalty-free license to all members.

Basically, it’s creating a legal force field for all the businesses in the group. If a LOTNet company sells a patent to a company that ends up being a patent troll, the troll can’t sue any of the LOTNet members, because of the way the terms of the deal would be written.

In other words, any company that joins the network is protected from any other company in the network—presuming the patent is actually sold. Canon can’t go about making Google Glass, for instance, because Google isn’t going to be selling the patents that make the technology work to anyone anytime soon.

LOTNet members estimate that had they formed this organization in 2005, they would have saved over $100 billion in costs of litigation.

While it is unfortunate that Congress did not pass reform legislation, how appropriate it is to see innovation in the war against trolls coming from the private sector. This is yet another lesson that if we are going to tame the trolls, don’t wait for the government to act, but instead come up with innovative ways cut into troll power.

Health Spending Grew Slower in U.S. than in Other Developed Countries, 2007-2011 (but the Trend Won’t Last)

medical-tourismIt is unlikely that Obamacare explains the slowing rate of growth in health spending. A new research paper by Luca Lorenzoni and colleagues, from the Organization for Economic Co-operation and Development, confirms not only that the slowdown occurred well before Obamacare, but that health spending has slowed more in the United States than in Canada, France, Germany , the Netherlands, and Switzerland.

The report shares some disturbing data:

  • Government-health spending as a share of all U.S. health spending increased by 4.8 percentage points, from 44.0 percent (2000) to 48.8 percent (2011), whereas it shrank somewhat in Canada, France, and Germany;
  • Despite the growth in consumer-driven health care, in the United States, the share of spending paid directly out-of-pocked dropped by 2.1 percentage points, from 14.2 percent (2003) to 12.1 percent (2011), whereas it increased somewhat in Canada and France;
  • Health administration and health-insurance share of government-health spending increased by 1.2 percentage points, from 5.1 percent (2000) to 6.3 percent (2011), whereas it shrank in Canada, France, Netherlands, and Switzerland.

The report also gives us more insight into a more important question: Do we spend too much on health as a share of Gross Domestic Product (GDP) versus other countries? The answer remains “no.”


Reining in the Fed

US Monetary Base

The Fed on Steroids

The House of Representatives is currently considering a variety of bills intended to reduce the power of the Federal Reserve System. (“House Republicans Resume Efforts to Reduce Fed’s Power,” New York Times, July 11, Business Section.)

Under the pretext of fighting high unemployment, the Fed has more than quadrupled its balance sheet since summer of 2008. It has acquired $1.7 trillion worth of mortgage-backed securities, and increased its holdings of US Treasury bonds, notes and bills by $1.9 trillion. At various points during this period, it has extended hundreds of billions to companies like Bear Stearns, AIG, Fannie Mae, Freddie Mac, and the risky corporate commercial paper market, and provided a special guarantee to over $300 billion of shaky assets held by Citigroup.

A hefty $442 billion of this massive aggrandizement of the Fed’s power has been financed by actually printing new currency, a 7.8% annual rate of growth. But most of the remainder has been paid for by creating new interest-bearing excess reserve deposits.

Prior to 2008, the Fed could not pay banks interest on reserve deposits, but in the 2008 TARP bill, Congress gave the Fed power to pay interest, at its discretion, on both required and excess reserves. Without interest on excess reserves, banks would rush to make new loans with them by creating new checking account balances. Some fraction of these new deposits (historically about 40%) would drain out as currency, until excess reserves fell to virtually zero. But since October of 2008, “all” the Fed has to do to prevent this is pay banks enough interest to make idle reserves an attractive investment relative to loans.


Governmental “Reform” Is an Oxymoron

beyondpolitics_updated_nf_180x270Pick your favorite scandal du jour:

Four employees of the Export-Import Bank recently were forced out of their jobs following allegations that they had solicited or accepted bribes from beneficiaries of the bank’s subsidies for foreign-based purchasers of U.S. exports or steered loans to politically powerful U.S. exporters.

The director of the Internal Revenue Service testified before Congress that “a dog ate his homework”: computer hard drives of senior IRS officials at the agency’s Cleveland, Ohio, office and at its Washington headquarters apparently had been destroyed, thereby precluding forensic recovery of emails relevant to inquiries into selective delays in reviews of applications for tax exempt status by organizations associated with the “Tea Party” and other libertarian groups.

Members of the U.S. Secret Service assigned to provide security for the president and his entourage reportedly paid women working in the world’s oldest profession during a trip to Columbia in April 2012.

Behind the veil of the “War on Terror”, an apparently out-of-control National Security Agency has been snooping on the telephone calls and emails of ordinary Americans and gathering information both on them and citizens of countries overseas not plausibly related to imminent national security threats, aided and abetted by a compliant federal intelligence service court.


A “Smart-Growth” Revolt in California

14817358_SOn June 18, the Larkspur City Council voted unanimously to kill a high-density “smart-growth” development plan for this community of 12,000 people 16 miles north of San Francisco.

The plan called for building 39,500 square feet of office space, 60,000 square feet of hotel space, 77,500 square feet of retail space, and up to 920 residential units in a half-mile radius around a proposed Sonoma-Marin Area Rail Transit station in Larkspur. The goal was to jam future residents into high-density housing and high-intensity commercial space near a future rail station to purportedly decrease greenhouse gas emissions. But local residents weren’t buying it.

According to the Marin Independent Journal, about 325 people attended the city council meeting, and all but a handful of speakers opposed the Station Area Plan, as it’s called, and cheered the city council for an “historic” no vote.

The plan was created after Larkspur received $480,000 in 2011 from the Metropolitan Transportation Commission (MTC) and the Association of Bay Area Governments (ABAG). The city of Larkspur and other agencies, such as the Transportation Authority of Marin, also kicked in $120,000 to complete the plan—money wasted to develop a rejected plan.

Unsurprisingly, the MTC and ABAG bankrolled the Larkspur “stack-and-pack” blueprint. These two unelected regional-government bodies also approved Plan Bay Area in 2013, a master plan for high-density housing, rail-intensive transit, and restricted land use in the nine-county San Francisco Bay Area through 2040. Larkspur City Councilman Dan Hillmer has called Plan Bay Area “fundamentally flawed.”

The resident outcry and vote by the Larkspur City Council point to the public’s unwillingness to passively accept Plan Bay Area and its vision of tomorrow, which unelected regionalists want to impose on local communities.

Hopefully, this vote is the opening shot of widespread revolts in the Bay Area and throughout California against similar “smart-growth” plans. But expect the MTC, ABAG, and other unelected regionalists to retaliate.

As reported by the Marin Independent Journal, during the city council meeting, Larkspur Councilwoman Catherine Way asked if “Larkspur could be at a disadvantage when seeking future transportation-project funding because of the council’s decision to stop the Station Area Plan.”

It is almost certain that the MTC will retaliate, withholding transportation funding for Larkspur and other communities that refuse to go along with Plan Bay Area. But preserving local control over communities is more important than accepting MTC bribes.

Gun Control Encore? Someone Picked the Wrong . . .

As an encore to their very successful, earlier video ads on personal self-defense, GLOCK Inc. has produced a new series of superb and humorous videos featuring R. Lee “Gunny” Ermey:

Someone Picked the Wrong Convenience Store:


NASA’s Children’s Climate Change Website, and the book 1984: Creating Spies One Child at a Time

NASA Climate Kids websiteFrom our friend Cal Beisner over at the Cornwall Alliance:

What would you say if your child accused you of a thought crime, and turned you in to the thought police?

Would you say it was ridiculous?

Perhaps you would say, “There is no ‘thought crime’ in the United States.”

Surely your children would never try to accuse you of a crime or try to change your behavior.

Well, think again, because that is exactly what websites like NASA’s Climate Kids intends to do, except they won’t accuse you of thought crime, they will accuse you of a climate crime.

This colorful, fun website has two serious flaws. First, it teaches “pseudo facts” about climate change in a childlike manner that is easy to understand. “Facts” such as

  • Eleven of the last 12 years have been the warmest on record. Earth has warmed twice as fast in the last 50 years as in the 50 years before that. (Actually, there hasn't been global warming in almost 18 years, and climate alarmist scientists know this.)

  • Climate change is causing unusual, extreme weather, some places are suffering long droughts and others are getting far too much rain in a short period. (Actually, the UN Intergovernmental Panel on Climate Change says there is no evidence that global warming has increased the frequency or severity of extreme weather events.)

  • "We don't know enough about Earth's ice to know just how many meters sea level is likely to rise as ice melts in various locations." (Actually, sea-ice melt makes no difference in sea level, and land-ice melt doesn't appear to have accelerated during the period of recent, allegedly manmade global warming. As a result, there's been no increase in the rate of sea level rise, which has been happening ever since the end of the Ice Age.)

  • All that carbon stored in all those plants and animals over hundreds of millions of years is getting pumped back into the atmosphere over just one or two hundred years. (Actually, there is good evidence that putting it there is not causing dangerous global warming, but it most certainly is causing improved plant growth all over the world, including of agricultural crops, adding $3.2 trillion worth of crop yield 1960–2011 and a projected $9.8 trillion more by 2050.)

  • ...Since 1979, ice has been getting smaller and smaller and thinner and thinner. Check out the Climate Time Machine and watch the ice shrink. (Actually, both land and sea ice expand and shrink over time in cycles in response to largely natural influences.) [Update, July, 2014: NASA's own National Snow And Ice Data Center show record ice levels at Antarctica currently.]


Understanding Waiting Times for Health Care

in-line-for-obamacareIn Sunday’s New York Times, reporter Elizabeth Rosenthal discusses evidence that that waiting times for medical care in the United States do not always compare favorably with those of other developed countries:

“I fully expect wait times to be going up this year for Medicaid and Medicare and private insurance because we are expanding access to care, but we’re not really expanding the system of providers,” said Steven D. Pizer, a health care economist at Northeastern University in Boston.

Unfortunately, the article evolves into an apologetic for waiting times as a good thing. I would also quibble with Ms. Rosenthal’s description of U.S. health care as “market-based,” which it certainly is not. I don’t think I’ve met anyone, pro- or anti-Obamacare, who does not expect waiting times to increase as long as Obamacare exists. So, we better get used to them. How to explain them?

First, it is surely the case that a little waiting might be beneficial. This is often alluded to in articles like Ms. Rosenthal’s, but only conceptually. Seldom do surveys actually compare experienced waiting times with medically appropriate waiting times. One that does is the Fraser Institute’s survey of waiting times in Canada, which finds that experienced waiting times do, indeed, exceed medically appropriate waiting times in that single-payer system. The Fraser Institute has also detected a negative effect on mortality.


Rags to Riches (to Rags Again)

EconomicFactsandFallacies_2Most income statistics present a snapshot picture as of a given moment—and their results are radically different from those statistics which follow the same given individuals over a period of years.” —Thomas Sowell

Last week, CNNMoney carried a fascinating report on how rich families end up squandering their wealth:

Nearly 60% of the time a family’s money is exhausted by the children of the person who created the wealth, according to Roy Williams, president of wealth consultancy The Williams Group. In 90% of the cases it’s gone by the time the grandchildren die....

Perhaps the most famous example is the Vanderbilt family. Cornelius, the patriarch, built a fortune on railroads and shipping during the mid-1800s. Adjusted for the size of the economy, he was the second richest American ever, worth over $200 billion—well above Bill Gates.

Yet his children—and especially, his grandchildren—lived lavishly, building huge mansions in New York City, Newport, R.I., and elsewhere, and did little to preserve the fortune. By the 1970s, the family held a reunion with 120 members attending, and there wasn’t a millionaire among them, wrote Michael Klepper and Robert Gunther in their book The Wealthy 100.

Besides the tendency of the heirs to indulge and live lavishly, experts interviewed in this story stated that the main reason why family fortunes ended up evaporating is because the original wealth creators do not give clear instructions on how to handle the money after they’re gone. As a result, surviving family members often engage in bitter infighting, leading to an eventual loss of fortune.