Accountability

What do you do when you are caught out in error? Do you admit you were wrong, or do you insist you were right and hope that if you talk fast enough and for long enough everyone will forget what you have done? When you are Megan McArdle, paid to be wrong, to disseminate bad information out of ideology and conformity, there is absolutely no question what you will do: Pull out the shovel and keep digging until you hit China.

The first thing you do is try to reframe the issue. The people who pointed out your deliberate errors did so out of fear and malice, not out of a desire to determine the facts of the matter.

There's quite a lot of question about whether Obama can turn health insurance reform around when he comes back from vacation next week. My guess is that he has to do it pretty quickly--within a few weeks--or any idea of really substantial reform is fairly hopeless. But I certainly don't think it's impossible. The man can talk.

But I gather that liberals are getting more and more worried. Why? Because the gratuitous nastiness from across the aisle.

So ultimately I'm saying, I think this is the way that our government works, and this is the way that markets work, and for all the screaming, these are not crazy positions.

So why talk any more? I can't believe how nasty this debate has gotten. I can't believe that people who claim to value a classically liberal market society, on the one hand, and people who say that all they want to do is help people, turn into such screaming, hate-filled lunatics when the subject comes up. A debate over health care should not remind me so much of a debate over the Iraq War. I write thousands of words on innovation, and John Holbo boils my concerns about lost years of life down to "indifference to the poor"--as if, first, the poor will not be helped by new treatments, and second, we should do anything at all, no matter how horrific the results, as long as it helps the poor. Well, and third, as if the poor weren't on Medicaid, but that's another rant. This is about as useful as my saying that John Holbo's basic philosophical premise is a desire for my grandchildren to die young. I devoutly hope that if any of his freshmen said anything remotely this silly in a paper, Mr. Holbo would flunk them.

[yap]

But I'm sad about what's happened along the way. I'm sad that people are carrying guns to protests, even though I think they have a right, and I'm sad that so many liberals have caricatured the opposition to the health care agenda as legions of astroturfed militiamen who accuse Nancy Pelosi of appointing Hitler to a death panel, or something. I'm sad that libertarians and conservatives are casting this as some sort of massive conspiracy of power-mad idiots, when there's obviously a very large left-wing policy apparatus built up around health care that knows a thing or two, and virtually all of the progressives advocating this are for it because they are worried about people who can't get basic health care. I'm sad that liberals are casting their opposition as being mostly about racism and hatred of the poor. I'm sad that the debate has taken place 95% at the level of the gut revulsion Red and Blue Americas are actively nurturing for each other.

It seems almost impossible to get anyone to engage in this kind of discussion. As I replied to him, you have to try to enter an imaginary thought world where not all discussions are instrumental in some larger argument about the level of government intervention in the economy. Where it is possible that I am not simply attempting to subtly maneuver my opponent into accidentally embracing my position so that I can jump out from behind a tree and scream gotcha! Where one might simply hear Julian Sanchez ask whether we really want to guarantee access to an expensive cancer drug that buys a modest increase in lifespan, and want to explore the reasons that you might answer, "Yeah, maybe."

But I wasn't concern trolling, or trying to set up a gotcha. I'd be genuinely interested to know how Ezra thinks those questions should be addressed, and not because I think that his answers will be stupid, or provide some launching platform from which I can attack the left. I simply think Ezra's answer is likely to be smart, nuanced, and interesting.

McArdle is the poor victim here, of the screaming and nastiness of the left when all she is trying to do is have a reasonable discussion about her imaginary guess-work facts and false anecdotes. And she grieves, oh how she grieves, over the bipartisan discord when all she is trying to do is have a philosophical debate about how our health care system is the best in the world and should not change, or else millions will die. She's saving lives here, people.

The second thing you do is lie. (Again.)

The [American Prospect] reference is to my off-the-cuff remark about slashing pharmaceutical profits by 80%.

It was not an off-the cuff remark. McArdle stated the number as if it were a fact and repeated it several times.

Megan McArdle (Replying to: cmm) August 13, 2009 4:05 PM
The United States currently provides something like 80-90% of the profits on new drugs and medical devices. Perhaps you think you can slash profits 80% with no effect on the behavior of the companies that make these products. I don't.

She repeated her claims in the comments and ignored several requests for a cite for her information.

Reply
FOARP (Replying to: Steve C) August 15, 2009 3:56 AM
I would also like to know where this 80% figure comes from. The big pharma companies which publish break-downs of turnover by region show roughly comparable turnover in the EU and the US, the difference nowhere being greater than about 25%. Does anyone actually have statistics which support this claim?
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Megan McArdle (Replying to: FOARP) August 15, 2009 7:27 AM
You're comparing revenue with net profit. Net profit is higher in US than in Europe, even though Europe has more people. When you take out generics, the difference is even more pronounced.


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Megan McArdle (Replying to: Xavier Cunha) August 14, 2009 9:49 AM
But those biotechs get funding largely because there's an exit strategy through an acquisition or IPO. If you slash the future profits on drugs 80%, the capital will dry up.

I'm not defending Big Pharma--I could care less if Pfizer stays in business. I'm defending market pricing for drugs.

I suspect that Holbo, and many of my interlocutors, are made intensely uncomfortable by the idea that their root assumption--that they are on the side of reducing human suffering and lengthening lifespans--might be wrong. There are a bunch of ways you can deal with this disturbing possibility. You can scream at me. You can posit a highly speculative world in which government and academia suddenly, and for no apparent reason, get a lot better a inventing devices and mass-market drugs than they have so far proven. You can claim, falsely, that government and academia already do all the work producing useful drugs. You can assume that slashing pharma profits 80% will have no impact on their behavior, or at least, only change the behavior you want to change.

After you lie you move the goalposts, building in enough wiggle room to move them again if you are caught lying again.

I should note, to be fair, that there were two portions of the comment: one in which I repeated an estimate I had heard from several people, that the US accounted for something in the range of 85% of pharma net profits after you accounted for various issues, which I then turned into 80-90% when typing--a fairly common way to give a range on an uncertain verbal statistic. And then I said, "So if you slashed pharma profits 80% . . . " When asked about it on the Washington Post live chat, I forgot the first, and thought the commenter was referring to the postulated hypothetical destruction of all US profits. It's not clear which part of the comment they are referring to.

But this "error" that I didn't check was not, contra Waldman, in a blog post, but in a comment, followed by a live chat on the Washington Post's site. Waldman doesn't seem to know that, which implies that he didn't look. I mean, I'm not saying that Waldmann should be fired. But maybe his bosses should sit down and have a talk with him about primary sources.

I may be in error on that--I've heard 80-90% from people in healthcare consulting, and I've seen that sales and profits in the US are usually larger when they're broken out on financial statements, which they aren't all that often. But they were not speaking on the record, and financial statements are not necessarily a very good guide to allocating the net profitability of a drug, because of various tedious pricing strategies involving market timing that you can read about in an exhaustive volume from the OECD that I have on my desk, if you want to come to my office, or spend $100 to buy it yourself. There are also issues of the way that companies allocate profits across international borders, which vary for all sorts of reasons, including the location of the company.

McArdle goes on and on, but you get the gist. Tucked into the goalpost moving is an admission of error, in a way.

I don't want my off-the-cuff comment, based on conversations with people who were not speaking on the record, to become the source of a fake statistic for the right. 80% may not be right, and I can't back it up with any hard numbers, because there are no hard numbers available. But multiple corresponding sources suggest that the number is well over 50%. 60% is probably the floor of likely.

That is not what McArdle said previously.

Megan McArdle (Replying to: drbel) August 13, 2009 4:08 PM
Actually, the bulk of the profits are from the US. Look at the financial statements of any company that breaks out its international operations. The bulk of the sales often comes abroad. But all the margin is here.

Megan McArdle (Replying to: Xavier Cunha) August 14, 2009 9:49 AM
But those biotechs get funding largely because there's an exit strategy through an acquisition or IPO. If you slash the future profits on drugs 80%, the capital will dry up.

Megan McArdle (Replying to: FOARP) August 14, 2009 7:06 AM
Look at the financial statements of any company that breaks out its numbers by region.

After obfuscating the issue, McArdle introduces a new topic into the discussion, abandoning her failed tactic for a brand new one to push.

[...W]e could go to the academic literature. Not the literature from advocacy groups which too often fills the pages of political magazines on the left and right, but something from someplace like Rand. And fortuitously, Rand happens to have published a paper on this very topic! Their analysis of the effect of a 20% price decrease--about what they estimate we could get:

Exhibit 1 illustrates the impact of introducing U.S. price controls on the longevity of cohorts ages 55-59, using our baseline parameter values. It shows that the introduction of price controls would reduce life expectancy by two-tenths of a year for Americans ages 55-59 alive in 2010 and by one-tenth for Europeans ages 55-59 alive in the same year. In percentage terms, these correspond to 0.8 percent and 0.7 percent declines from the status quo.

The longevity effects are larger for the older cohorts, because the effects of price controls take time to set in. The early cohorts are not exposed to innovation reductions for a number of years. This dampens the impact on their life expectancy. By 2060, Americans and Europeans in this age group lose almost 0.7 years of life expectancy as a result of U.S. price-control implementation.

McArdle has actually found a cite for her work, something she usually find completely unnecessary, but did she check the cite? After the Black Panthers incident and so many others it would be very foolish to take her word for anything. Several commenters question the Rand paper and one point out an extremely important fact.

September 3, 2009 12:23 AM
The RAND paper contains the following disclaimer:

This research was funded by a grant from Pfizer Inc. to the RAND Corporation, with additional support from the National Institute on Aging through a grant to the RAND Roybal Center for Health Policy Simulation (1P30AG24968-01), and from the Bing Center for Health Economics.

Of course, one of the things not mentioned in the RAND paper was that if Pfizer reduced its dividend payout to the rate of, say, Cisco Systems it could double spending on R&D. But, hey, why ruin a good party.

Reply

Megan McArdle (Replying to: ndm) September 3, 2009 1:25 AM
The question is, what would happen the next time Pfizer needed to raise money?

The Rand paper [pdf] make the same assumptions as McArdle.

Pharmaceutical pricing and access involve a trade-off between current and future generations. The prospect of higher future profits creates stronger incentives to innovate, which benefit the future generations who will use tomorrow’s inventions.

Conversely, policies that ensure high profits typically impose greater spending burdens on patients using today’s innovations. As a result, policies that promote higher revenues benefit future generations, but possibly at the expense of today’s patients. Some critics have questioned the empirical validity of the link between profits and pharmaceutical innovation; however, a great deal of evidence suggests an underlying relationship between the two.2

The second important trade-off in pharmaceutical pricing is global in nature, because new treatments are of value to the entire globe. Thus, spending by Americans encourages innovations that benefit both Europe and the United States. As a result, U.S. spending cuts may harm Europeans.

We have seen evidence that McArdle's theories on innovation are flawed and based on guesswork and conservative conventional wisdom. It will take more than one flawed paper to support McArdle's claim. Giving her the benefit of the doubt and assuming good faith is not an option. But--McArdle does have a new talking point to flog; national health care will cut about eight months off of your life. And flog it she does.

I think probably most people would agree that if Rand is right, and price controls shave, say, almost a year off of average lifespans, this is not necessarily a good deal for even the squishiest bleeding heart liberal--for the same reasons that socialism turned out not to be a good idea.

[yap yap]

You may disagree. You think government works better than I do. You think we'll be able to draw a line in the sand and keep the government from crossing over it to take over more of the market. You think government spending can substitute for R&D, because you don't find the socialist calculation debate compelling. Or maybe you say, hey, yeah, well, 0.7 years off the average lifespan isn't a bad tradeoff for covering the uninsured.

I can't talk you out of it. You can't talk me out of thinking that 0.7 years of life is a whole lot of life when you apply it to 400 million people. Numbers like that seem kind of meaningless-it's just eight months!--but this is composition fallacy. Some people won't live longer. Some people will die sooner, because treatment is iatrogenic in at least some cases. And some people will get extra decades of healthy life to hug their children or compose symphonies.

It's a judgement call. Not all values are commensurable. There are multiple theories of politics. And justice.

She cares, so very deeply, you see. She's keeping an eye out for the little people, not the drug company or companies that shovel money into The Atlantic. Everyone has her all wrong; she really has a heart of gold.

Finally McArdle wraps up her contribution to the health care debate by declaring the thorny problem of fake statistics settled and done.

So we've arrived at an impasse. I think fiat will screw up the health care system even worse than fiat has already screwed up the health care system, and that this will be bad for everyone in the long run.

McArdle reserves the right to continue discussing anything that strikes her fancy, but she has moved on past the old, uncomfortable past into a shiny new future, where nobody remembers a word she said and everyone ignores the killing blows to her reputation and legitimacy.