And Cervarix makes two

Merck's $360-a-pop HPV vaccine, Gardasil, will now have some competition from GlaxoSmithKline. From the Philadelphia Inquirer:

The race for prestige and profits in cervical-cancer vaccines intensified yesterday when GlaxoSmithKline P.L.C. formally asked U.S. regulators to approve its vaccine, Cervarix.[...]

Both vaccines have been shown to completely block at least two strains of the human papillomavirus, or HPV, blamed for roughly 70 percent of cervical cancers.

Well, it's good that there's some competition now so that the price of the HPV vaccine will go down. I was beginning to think that the Texas governor Rick Perry's executive order requiring all girls in public schools was partly driven by a desire to hand sacks of cash over to Merck, considering its exorbitant price, but this should change things. Or not:

Doctors and policymakers who expect competition automatically to bring down vaccine prices are likely to be disappointed, at least initially.

Jean Stéphenne, president of GSK Biologicals, the company's Belgium-based vaccine division, said in an interview last month that GlaxoSmithKline aims to win over physicians and others by proving Cervarix is better, not by selling it for less.

"If you start a price war, you give the impression that your product is of lower quality," Stéphenne said during a trip to Philadelphia.

"For sure, at a certain point, we will compete to get a bigger market share" based on price, Stéphenne said. But he indicated the initial strategy would be matching Merck on price and beating it on effectiveness.

The strategy, while good for vaccine-makers and potentially the Philadelphia pharmaceutical sector, could prolong financial headaches across the nation's health-care system, where physicians and patients already face a cash crunch over Gardasil.

So basically two products that accomplish the same goal from two different companies will be pricing their products the same in order to prevent the appearance of inferiority. While they indicate that they may lower the price a year after Cervarix is approved, that puts it more than a year away with state legislatures passing laws for one of them to be used. They could score up a lot of their market before they lower prices in order to compete.

Moreover this shows how a couple of companies know that all that jazz about demand curves is bogus when you're talking about saving people's lives. State legislators, while caught up in the debate over abstinance and an HPV vaccine, aren't going to pass up this vaccine because of the price of either one. All it becomes is another burden on families putting their daughters through school or a burden on already cash-strapped state health agencies that might provide some funding for the vaccines.

No matter who picks up the burden of paying for Merck CEO Richard Clark's $8 million salary or GSK CEO Jean Pierre Garnier's $7 million salary, this whole story goes to show why the government needs to be able to negotiate drug prices with pharmaceutical companies. You know, just like any other major buyer does with a supplier.

Oh, and the Inquirer article had this little gem:

"We really don't know the effect of competition on prices, whether it gives us a better negotiating position. We think it does, but we don't have hard evidence," [the CDC's Lance] Rodewald said.

Yup.


(h/t Feministing)

What are we doing here? (Short version)

Neoclassical economics dominate mainstream economic debate through dogmatic power. These theories are based on several assumptions:

1. People act rationally to maximize utility.
2. People have all knowledge necessary to act rationally.
3. Competition increases efficiency and quality of life.
4. Economic growth is without limit.
5. All problems caused by growth can be solved with more growth.

These assumptions are constantly being proven inaccurate, so I'm taking those inaccuracies and making a blog of it to help promote progressive policy making.

Enjoy!

What are we doing here? (Long version)

Remember high school economics? All that Adam Smith, supply and demand curves, and TINSTAAFL? I'm sure we could all go on and on about all the crazy things that we learned in that class.

For example, I remember our teacher telling us about how when a nation has a negative trade deficit, the value of its currency decreases. That decrease makes exports from that nation cheaper, and other countries buy them up, helping its economy and increasing the value of its money, thus repeating the cycle. So poor countries have the means to become rich, and rich countries will inevitably lose wealth as they cannot produce exports as cheaply as the poor countries.

Makes sense in theory, right? And I uncritically filed it away in the back of my mind, as I'm sure most of my classmates did. Well, at least the ones who were paying attention.

How wrong could such a theory be? The answer, of course, is very, very wrong. And one only has to look at the perpetual poverty of some nations and compare it to the perpetual wealth of others to see that the theory has almost no predictive value. And a theory without predictive value isn't really worth much at all. This particular one doesn't take into account global racism, protectionist trade policies like farm subsidies, and other wholly irrational ways in which people work in contradiction to neoclassical economics.

This is just one example of the many ways in which economic theory has a big disconnect from reality. I could provide more examples, but that's the whole point of this blog.

Neoclassical economics is based on the following assumptions (this list is not complete):

1. People act rationally to maximize utility.
2. People have all knowledge necessary to act rationally.
3. Competition increases efficiency and quality of life.
4. Economic growth is without limit.
5. All problems caused by growth can be solved with more growth.

This leads to predictions that are ridiculous on face, like that people will buy from green companies if global warming is happening thus stopping it and that people will always seek and find the highest paying job for themselves and that the social welfare that people want for themselves or others can be handled entirely by charity. We can laugh all we want, but they're justified in theory.

The problem with them being wrong is not that they just slip into legislative and media policy-making debates. They dominate those debates. The neoclassicists and their dogma is at the center of the debates, often completely unquestioned.

Of course, neoclassical economists have resisted actually testing their theories but still want and very frequently get the same respect that other fields that do their homework get. Consider this from economist Robert Hanson:

Consider how differently the public treats physics and economics. Physicists can say that this week they think the universe has eleven dimensions, three of which are purple, and two of which are twisted clockwise, and reporters will quote them unskeptically, saying "Isn't that cool!" But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to "balance" their story.

They can get pretty smarmy, too, like in a statement from several Republican members of Congress:

For many years it has been a matter of conventional wisdom among economists that the minimum wage causes fewer jobs to exist than would be the case without it. This is simply a matter of price theory, taught in every economics textbook, requiring no elaborate analysis to justify.

I'm not going to get into the ins and outs of the minimum wage right here, but what's important to note from these two quotations is that they pull their power from the dogmatic nature of neoclassical economics. The first points to how they have degrees and how there is a consensus amongst economists on the minimum wage (which is far from the truth), the second basically says that anyone who didn't uncritically learn neoclassical economics is an idiot for not believing it (it's everywhere so it's gotta be true!).

The irony, of course, is that both justifications for why neoclassical justifications of public policy should be considered true is that they've already been considered true by many others. It's a cyclical appeal to authority - it's true because we say it is, and by saying it is we're making it true. In that way the dogma is advanced not by truth or study alone, but by power. As Christopher Hayes put it:

As Nobel Laureate Joseph Stiglitz put it, the dominance of the neoclassical model is a “triumph of ideology over science.” In the popular press, however, such dissent is almost entirely absent. [...] For Thomas Friedman, people can’t “disagree” with neoclassical economics. They can only fail to understand it.

There are a lot of ideas about where that power might come from, but again, that's an issue I'll address later.

So that brings me to the main point: What are we doing here? Well, since a group of theories known as neoclassical economics have such power as theories even though they resist experimentation like other social scientific fields, someone's got to point out the news stories that contradict the numbered assumptions cited above. Theoretically, as someone once said, everything can be theoretically justified. So when the rich want some sort of law passed that would chiefly benefit them, they often rely on neoclassicism. That's why power instead of study is used often to advance it - economics can seem complicated and daunting, so the people who would be hurt by such policies are told to go home and not worry about it. If they do question some of the more laughable theories, they're labeled "flat-earthers" by the likes of Thomas Friedman.

That's why I'm starting up Street Economics. Economics related to basic public policy shouldn't be daunting. If you open your eyes and pay attention, you'll get lessons in economics every day. Here I intend to post about real instances where academic neoclassical economics falls flat on its face in the real world. This isn't to say that it can't ever be right, but just to say that it isn't right all the time and its dogmatic authority can and should be questioned frequently.

Most of all, this should be fun and painless. At least more painless than letting someone else control the economics debate.