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The FDA: Even worse than the Fed?
I saw a link to a WSJ article on ‘Do it Yourself ALS Treatment’ at Seth Roberts’ blog. The gist is that because the FDA (the fiendish bureaucracy which controls medicine in America) puts up so many hurdles to the testing and selling of new drugs, companies can only justify small trials on the most promising patients, especially for rare illnesses. As a result, some savvy patients are selfmedicating and swapping notes online in hopes of forestalling their death sentence. I don’t have anything new to say here, just wanted to share a hopeful example of how the Internet is helping freeborn citizens to make the best of a lousy situation.
I’d like to share some tragically hilarious quotes from the WSJ article:
Jonathan D. Glass, professor of neurology and pathology at Emory University School of Medicine and director of Emory ALS Center, is one of the NP001[the drug under trial] site investigators. He said he is concerned that “these people could hurt themselves. Who knows what they are actually making in their kitchen.” He says patients need to work with doctors and regulatory officials to find ways to speed up the drug development process. “I feel their pain that they really want it to happen faster, but I don’t think you can do it without the medical establishment,” he said.
“These people could hurt themselves”. I stand in awe.
When one is breathing through a machine, eating through a tube, ‘not hurting oneself’ is a fairly low priority. They have fallen back to the keep and there are no options left. I reckon that without the FDA in the way, there would be a few researchers will to help patients take chemical shots in the dark, if only for the extra data. When you have ALS a shot in the dark might be the best choice.
I once read that it was typical for poorly connected Soviet citizens to pulling their own teeth because of a shortage of Russian dentists—the parallels abound.We can only hope that legal arbitrage and cheap flights will breakdown this wicked system. I could see more and more medical research into marginally profitable treatments for fairly rare diseases moving to Singapore for example. At what point does it become normal to fly to Asia for rare disease treatment? For not so rare disease treatment? Are there laws stopping American researchers from working on treatments which will only be used on the Asian (and medical traveler) market?
One more quote:
They have no control group, patients decide on their own how much to take, and some drop out if they feel no benefit, he said [an ALS sufferer treating himself with version of the drug under trial]. But the data will be publicly available, and he added, “the debate over whether sodium chlorite slows the progression of ALS will now be between everyone, patients, researchers, politicians and the media, not just physicians and the FDA.”
They do have a control group. They have the thousands of people who have died from ALS. Statistical techniques can be used to match selftreaters to a synthetic control group. Hell I did problems like this in my undergraduate Bayesian statistics class.
Just as the Fed is wedded to a particular paradigm of regulating money creation, the FDA is wedded to its own system of drug creation. Breaking with that system would entail a loss of prestige and credibility. I am more hopeful that the FDA can be held accountable than the Fed, as the layman (me) can clearly see the argument, less so with monetary policy.
Orszag goes after Friedman and EMH
I am baffled that the left won’t drop their crusade against the efficient markets hypothesis. Here is Peter Orszag on Bloomberg:
…DeLong,…and colleagues have shown,… that if other market participants tend to follow “positive feedback” strategies by buying when prices rise and selling when prices fall, financial speculators may destabilize prices even as they turn a good profit.
I am baffled because the EMH is the most easily defended part of the market friendly position—it is almost axiomatic. It would be a much better use of their time to accuse conservatives and classical liberals of hating poor people, or of not believing in the magic dust properties of spending tax money on schooling. Hell, even cherry picking welfare state outcomes would be better.
I have quickly read DeLongs paper and must say that Orszag is overselling it. Far from “proving” that Friedman was wrong about financial markets, DeLong has built a just so story using algebra. Build me an agent based model, algebra is so passe. But let us say that DeLong is right and that aluminum markets were periodically inefficient. Big deal. DeLong should have used his findings to get rich before publishing, then we would know he had a meaningful result. The funny thing is that had DeLong made profits from finding market inefficiencies, he would have been solving the very problem over which Orszag seems so worried. DeLong makes a plausible sounding case that smart speculators know that when they go long, dumb speculators will also go long (after seeing rising prices) which in turn warrants going even longer today (too long). My predictable, boring and watertight objection is that because the price of a commodity must be linked to its supply/demand value (fundamentals) in the spot market, other, even smarter traders would be leaving money on the table to not go short when prices got away from fundamentals because of “positive feedbacks”. Again, if DeLong had really found something, he should be rich from trading.
The only reason I bothered to bring the Orszag article up, is because he is using a major, and seemingly unbiased publication like Bloomberg News to lower Milton Friedman’s after death status in the eyes of a financial community too busy to carefully read every article. Milton Friedman was not “proven wrong”, even if the DeLong result was interesting (it is not but DeLong is a good writer and gets a pass for being an NGDP level targeter). The Friedman quote is about currency markets. Currency markets are very deep, and widely watched. That a less deeply traded market, which suddenly undergoes a sharp increase in trading volume, might deviate more from efficiency for a brief period, is not inconceivable. Big deal. What is the overwhelming tendency of speculation? When the government finds a way to systematically predict which/when markets are inefficient, I will be the first to step up and say “Have the treasury buy and sell in this inefficient market to get a return for tax payers!”.
A better headline for Orszag would have been “Eugine Fama Proven Wrong” because Fama did much more work on EMH than Friedman, but then Fama doesn’t carry the weight of the redoubtable Uncle Milton. The Left hates Friedman because he was such a giant, who’s legacy and Youtube hits bedevil them even six years after his death. Milton was a near-peerless mind, a disinterested scientist (when it came to theory), and pitiless but charming logician (when it came to debate). The Left would much rather deal with a boorish Fox News goon. I’ve seen that the media never miss a chance to put up headlines like “U.S. Recession Proves Friedman was Wrong About Freedom”, so great is their need to discredit him.
DeLong found an after the fact example of market inefficiency (remember, there is no evidence he traded on his findings): How many traded commodities are there? How many traded assets? And they found that aluminum was being sporadically pushed away from fundamental value by ETFs…Great. What are the public policy implications? Should we subsidize financial theory courses for aluminum traders? They are the ones who bore the cost in this episode. Outlaw index funds? Only allow professionals to trade aluminum? Seems to me that savvy hedge funds and institutional traders will quickly pick these patterns up with their data mining systems and deep knowledge of specific markets. Traders are smarter than economists.
Overturning the EMH would be a hypothesis rejecting achievement on the order of say, refuting evolution. Certainly the market isn’t magic, and in the process of moving from inefficiency to efficiency, there are a few profits to be made here and there if you have the right insight at the right time. As far as systematically earning excess returns by ‘destabilizing prices’, please. Show me your trading book.
P.S.
My favorite ‘public speculator’, the complicated and thoughtful Scotsman Hugh Hendry, builds his trading strategy around contention. Expressing slightly nutty (and bearish) things through asset purchases. It is telling that DeLong’s model makes no allowance for contrarian investors:
P.P.S.
My speculation strategy since December 2011 has been to be long a U.S. dollar currency index and 3D printing shares. I am sure to get rich. Also, the NOK has been back at 7.60 to the euro since the rate cut.
Some links from The Economist
The Economist has been on fire this last week
1. A good summary of the top papers from the Wolfson Economics Prize[link fixed]. Although I have it printed out before me, I have not yet read Nordvig and Firoozye’s paper, though from what I gather, their approach is at least vaguely similar to my idea, except of course, they submitted a paper and might win cash an acclaim. The similarity is that they also suggest being open and turning the Euro into an index unit linked to new national currencies.
2.China is going to take over the world. Well, not tomorrow, but it is too bad American and European politicians are doing their best to fordo their respective inheritances, making it unlikely that Chinese geopolitical ambition will be easily contained. I went drinking studied abroad in China for seven months, and am, on the whole, a Sinophile. Still, while I like the Chinese penchant for honesty (not PC at all), they are also belligerently nationalistic. A little patriotism is warranted, but Christ, do you need to genocide the Tibetans like that? Also, if you think American troops are a bit brash, the Chinese would have put a Roman Peace on Iraq so quickly that it would have made peeing on a few dead Islamists seem like a gender studies lecture.
3.Detroit is done. Forget the Clint Eastwood sentimentality, the once great city is on its last legs. Beset on all sides by financial and demographic doom. This sad tale is a good working example that, There Aint So Such Thing as a Free Lunch. That is, you can’t scam your way to societal wealth through labor laws.
4. Not from The Economist but…I guess funny is the word. Stockholm is going to burn Neapolitan trash for heat and electricity(in Norwegian). What? Sweden can import rubbish from Southern Italy and use it as an input in the chain of value creation? No one in Italy can make this transaction work? A friend who lived in Italy once told me of an Italian saying, something like ‘Naples is a great city, except for its people’. Maybe it was Palermo. Point stands, some place in that sunny, visually stunning part of Europe which doesn’t respect personal space or the inalienable right to sidewalk anonymity. While we are splitting up the Eurozone, lets get Il Mezzogiorno its own monetary system too.
Taleb on banks
I’m finishing Tim Congdon’s Money in a free society. Suddenly, it is clear. New Keynesians like Bernanke emphasize bank lending. According to them, to forestall financial turmoil, one should keep a careful eye on lending and various interest rate spreads. Intervene as needed. Then financial turmoil arrives in 2007 and when you have a hammer…
I find myself wondering, although Bernanke is likely an honest broker, if his political rise was not helped by the emphasis of banking in his research. I am going off Congdon’s book here, having only read Bernanke’s work on oil supply shocks, nothing on banking. Think of it as Monte Carlo find-a-technocrat. Lots of bright researchers randomly pick fields to study. Those who build theories which bolster existing interests, rise. Sounds familiar, maybe Buchanan wrote on this…
I reckon that misaligned incentives in our bureaucracies are why it took a decentralized force like The Internet to bring NGDP level targeting to public attention and similarly to expose the deliberate lies and omissions of the nutritional and medical establishment. Both NGDP level targeting and high fat, low toxin eating would benefit the man in the street, but hurt specific interests (risk hiding banks, economists, nutritional ‘scientists’, factory farms and some doctors and politicians). The lies are only slowly being undone, but if they are true, they will win in the end.
Here is everyone’s favorite living Levantine philosopher, Nassim Taleb, to remind us how society was held hostage by the banks in 2008:
Taleb’s proposal would be unneeded under NGDP level targeting. Simply letting the banks fail would be much easier if the stock market held steadyish in a banking crisis, as it should if Market Monetarists are right. Level target NGDP and let the chips fall where they may.
