Tuesday, November 16, 2010

Freedom, and meth

This is your brain on Sudafed
When I'm sick, I have a terrible obsession with Sudafed. It's like some sort of somehow-I-can-actually-breathe-and-function-on-a-normal-level miracle drug.

In yesterday's New York Times was an op-ed discussing the restriction of drugs with pseudoephedrine, which is one of the main ingredients of methamphetamine. After years of being available over the counter, then low levels of restriction implemented requiring purchasers to show an ID, the author believes Sudafed and other such drugs should only be available with a prescription.

Certainly he's right in saying that requiring prescriptions would cut down on meth creation. But it may be enlightening to examine the costs and benefits to society and to individuals.

Let's start with the costs of requiring a prescription, which intuitively lies with those of us who use these drugs for, you know, our noses. Economists would try to assess the new costs with a survey asking, in one way or another, how much it's worth to you to have Sudafed available without a prescription. For me, it's the cost of my time to go to the doctor, the cost of seeing that doctor every time I get a cold (my copay, if I've got insurance), then the cost of my time to wait for the prescription to be filled, etc. Now add those up for every user of Sudafed, and we have some general understanding of the costs to individuals who use the drug. (I over-dramatically refer to this part as "freedom" because it represents my ability to pursue something that I want without external interference.)

We also have to examine the costs to insurance companies for paying for my doctor's visit, the opportunity cost of a doctor (or nurse practitioner, or whoever) who has something significantly better to do than waste time writing me a prescription for the sniffles. And add to that the opportunity cost of time for a pharmacist or technician to fill a bottle with Sudafed.

Now, if Sudafed is that hard for me to get, I'm also less likely to get it as often. So another cost of that regulation is the lost revenues to the makers of the drug, which will be much less widely used when it's more costly (even in terms of just time) to get. And distributors like CVS will see decreased revenues from selling the drug. Add that to total costs.

Some benefits are easy to point out just from our costs. Doctors have a few more visits (though not as many visits as there are people buying Sudafed now, since we will not buy it as often), and they get paid for that. Pharmacists are required to fill more bottles, and they get paid for that as well.

The big benefit, according to the article, is that meth will be much harder to make and therefore less widely used. This benefit could be pretty huge, considering that meth is one of the most harmful drugs out there (after heroine, crack and alcohol). But we have to assume that a percentage of people who use meth in the first place will steer their abuse to some other drugs that may be more or less harmful, so we must discount those benefits based on those decisions. The benefits include health care costs, increased wages from not doing meth all the time, property damages due to hotel room explosions, and some other hard-to-measure, easy-to-exaggerate effects.

Conclusion, and proposal
With almost any restriction policy, there are winners and there are losers. Often, the losers are those in society who benefit from the proper, unrestricted use of medication/alcohol/tobacco(/christmas ornaments?). The trick is figuring out whether the freedom to use them outweighs the potential benefits of the restriction.

Could we find a less restrictive way to keep meth manufacturers from getting the drug that would allow legitimate users full access?

What if we put a big tax on the drug, then offered a rebate from the tax pool that required identification in one source? This way, the costs to me are only marginally bigger (because I have to take the time to send in for the tax), but the cost to meth manufacturers are much higher, since they wouldn't be able to get the rebate; we would also avoid the "smurfing" problem that the NYT author points to as a loophole in the current system. Certainly it's imperfect, but it does at least have the added benefit of allowing sick people to use a drug for legitimate purposes.


I've been thinking about my recent post on voting, and I'd like to add an addendum: I think people are more likely to vote if they identify as part of a group of people. In my equations, this would correspond to a higher value for "v," which increases the impact a voter expects to have on the outcome of an election.

There's certainly a better way to put this mathematically, but I haven't gotten around to revising that part yet. More to come!

Tuesday, November 2, 2010

Is it rational to vote?

So I wanted to write up a quick little analysis of why people go out and vote depending on their perceived impact of the election, their affinity for voting and the costs incurred by spending the time to do so. The exercise got a little lengthy, but I had fun with it nonetheless. It assumes an election between two candidates and no other questions on the ballot.

The document is embedded below (it's only 4 pages, so suck it up), and comments are always welcome!

As a follow-up: Is voting the only way to participate in our government? Is it the most effective way?


Monday, October 25, 2010

Let's trade crap!

You know what sucks? Advancements in technology. Paper money is totally evil, and we should probably do away with it because, as far as I'm aware, there was no such thing as evil before currency reared its ugly head right around 2000 BC.

Luckily for me, some folks in Durham, NC (shoutout!) are throwing a helpful event where I can just bring my junk, drop it off, and pick up someone else's junk. What a relief, as I usually have to rely on the dump for that sort of service.

Is "Free Market" a play on the fact that they're all hippies?

Sadly, I expect the organizers will just end up with a bunch of trash at the end of the day. (Helen, if you're reading this, I'm sorry I stole it off your Tumblr and am now totally ripping on it.)

In truth, it does sound like a fun enough event. Going back to a barter economy is something like participating in a Renaissance fair without dressing up like an idiot; you get to spend some time really understanding why we don't live that way anymore.

In fact, if I've got my economic history right, marketplaces like this - but with less worthless crap - were the way modern banks were sort of born in Venice. (Aside from pretty much all of China, Venice was the evolutionary capital of financial systems around the 14th century.) Instead of lugging around their giant sacks of gold and whatsuch, uber-rich Venicians would make a stop by the bench (in Old Italian, banca - hence "bank") where exchange counters hung out, drop off their gold for a deposit slip, and pay sellers with what was essentially a check on their account. Awesome, no?

In any case, people found it much easier to carry little slips of paper instead of, say, a bunch of goats or something. Funny how that idea caught on.

Wednesday, October 20, 2010

Planet Money is totally reading my blog...

Actually, that's probably not true. But they did have a quick discussion about the nature of the value of gold (see recent post, What's money worth?).

From The Friday Podcast: Gold!

"The guy who sells it to us says he doesn't know why it's worth anything at all. And a fund manager with millions of dollars invested in gold told tells us it's a mistake to try to make sense of it."

Sunday, October 17, 2010

What's money worth?

Last week I listened to an interesting podcast from NPR's Planet Money in which four economists from Brazil saved the country from a horrible inflation problem. It was pretty fantastic, and I definitely recommend giving it a listen.

As you may already be aware, inflation is an increase in prices not because products get better, but because currency isn't worth as much anymore. It's common, but it can be terrible in big doses. Hyperinflation means the value of your money starts to drop off, making you poorer even if you still have the same amount stashed under your mattress.

Bad inflation can happen (and did in the case of Brazil and post-WWI Germany) when governments print too much money to pay off their debts. Essentially, since there's more money out there, it's worth less than it was before. So prices go up, and you're stuck with what's in your wallet.

In Brazil's case, prices were going up like crazy: 80 percent inflation per month. To cite PM's example, a $1 carton of eggs would cost about 2 bucks next month, and after a year, they'd be $1000. Check out the story for other interesting tidbits, but here's the spoiler: they fixed the currency by replacing it.

The interesting part is that it was all a trick; they replaced the old currency with a new one, and the pure fact that people were more confident in their currency meant it was worth more.

Enter crazies to inform us that it's for this specific reason that we need to be back on the gold standard, that our money is worthless, that it only has value because we say it has value. In the old days, you could actually trade your dollar bills in for gold and silver from the US Mint. But no longer. Well, joke's on you, crazies: gold is only worth what someone will give you for it. So is silver. So are diamonds. So is shiny, compacted moon dust. And so are dollar bills.

(Note: some non-crazies have debatably less empty arguments for why we should be on the gold standard, such as limiting the Fed's ability to manipulate interest rates. But we can get into that another time.)

Thursday, September 23, 2010

Misunderstanding risk


Why are people so terrible at understanding risk and probability?

A few months ago, Walgreens had planned to begin stocking a DNA testing kit. You could swab your mouth and send off the sample to find out whether you have any genetic risk for certain diseases.

There's certainly value in finding out your statistical genetic risk for certain diseases. But as my good friend Tyler pointed out to me, not everyone would understand what to do with that information. He thought that while some people would be able to use the kit and take action depending on the outcome, others would completely misinterpret the results, which could theoretically be dangerous.

The problem is that people don't understand the probabilities and calculations that they're dealing with. It's not just uneducated people; everyone makes decisions that, given the statistics, seem completely irrational. The probabilities are complicated and sometimes very counterintuitive.

How do we get to the bottom of that problem? Teach more statistics? Write indecisive blog posts?

Thursday, September 16, 2010

Living in sin [taxes]

Recent email discussions with my sister have left me in a bit of a philosophical conundrum. A first-year Consumer Behavior PhD at Harvard, Katie's been bombarding me with her insights on microeconomic incentive structures. 'What the hell is that,' you say? Well:

Essentially, an incentive structure is the way your choices are laid out in a particular instance (for a whole lot more, see: Nudge and Jodi Beggs). For example, imagine walking into a supermarket cereal aisle. Often, the supermarket-powers-that-be put the nice, expensive Cocoa Puffs at eye level and the "Choco Rice Cereal Imitation" cereal down by your feet. The objective, of course, is to get you to buy the name brand stuff by altering the way you view your choices.

I can hear you thinking, "I don't fall for that kind of stuff." But here's the thing: yes you do. Exhibit A:


While it's definitely interesting to see how much money you can take from suckers at the grocery store who don't know that Fruity-Os and Fruit Loops are exactly the same, this type of thinking can also have a pretty significant impact on the way we think about government policy regarding unhealthy choices.

Consider smoking. Actually, don't consider it. Aside from being gross, it's also very unhealthy. But that hasn't kept millions of Americans from smoking cigarettes. (Full disclosure: I've been counted among their ranks a number of times.) The literature seems to say that people are well educated on the negative impacts of smoking; they even overestimate the consequences [citation needed]. So what's going on here?

There are a few possibilities. Smokers could also be overvaluing the benefits of smoking. (Let's face it, nobody looks cooler than a cowboy with a cigarette.) But some smokers could have the costs and benefits completely pegged -- that is, they've taken the loss of additional years into account, and they've come to the conclusion that they would still like to smoke.

Is that wrong? In general, I'm of the mentality that if you take on all the costs, you ought to be able to do whatever you please. I don't mind if you spend a little less time on this earth, as long as you don't take me down with you.

But here's the humdinger: research shows that smokers put negative externalities on society. That is, there are some "spillover" costs that "spill over" onto the rest of us. Second-hand smoke may be a negative externality, and increased health care costs certainly fall into that category.

Historically, economists have lauded Pigovian taxes (read: sin taxes) as the most economically efficient way to internalize a negative externality, assigning those external costs to the person doing the puffing. Still others approve because sin taxes can simultaneously raise government money and save us from ourselves. They provide revenue and cause consumers to cut down on smoking/drinking/polluting/anything fun because of the additional cost.

But let's take another example in the same vein: soda. New York City health officials recently proposed (and struck down) a tax on soda as a way to cut down on the health industry impacts (and, let's face it, unsightliness) of obesity. The idea is the same as a tax on smoking: change the incentives so that it costs more to make an unhealthy decision.

This is where some people begin to draw a line. (Don't tread on my soda intake!) Their protests beg the question: Why is a tax on smoking justifiable but not a tax on soda? I think it's because the public has an easier time imagining a part of the population that drinks soda but doesn't impose a negative externality on society. After all, there are a many soda drinkers that aren't obese and don't have diabetes (yet), and there are those that probably even exercise and take care of their health. But the tax doesn't seek out unhealthy soda drinkers; everyone must pay the cost. (More on Pareto Efficiency in another post.)

Ideally, you would be able to seek out the soda-abusers and alter only their incentives. But even coming at it from the health care perspective, you could never say without a reasonable doubt that your gluttony for high fructose corn syrup was the sole cause of your health issues. Could we somehow change the infrastructure of the health care industry to avoid externalities from unhealthy choices? Not likely.

In closing, it's very important to note that taxes are not the only means of altering an incentive structure. (Indeed, if I didn't note that, Katie's comment would be quite as long as the post itself.) Rest assured, there will be more on nonmonetary incentives soon.

Wednesday, September 8, 2010

Life's about choices

You know what's interesting? Economics. Economics is the study of choices, of equilibria, of markets; it's the study of why and how, what and how much. It's explanatory, it's [sort of] predictive. And it's effing complicated.

Over the next however-long-it-takes-me, I'll be at Northeastern University in Boston getting a Master's in economics. The plan is complete immersion: I'll be taking classes and working as an economics TA, grading papers and hopefully working with professors on research. My only other time commitment is, well, being married. And after a whole year, I'm pretty sure I've got it down pat.

What's with the name?

To me, one of the most interesting basic ideas of economics is opportunity cost, or the comparative cost between two mutually exclusive choices. To illustrate, let me give you this example:

Suppose I have $10, and with that $10 I can buy either an iPod or two bananas. (Ridiculous cost disparity noted, thank you.) In this case, the opportunity cost of one iPod is two bananas -- that is, I'm giving up two bananas to get an iPod. Not a bad deal.

The concept can be applied to all sorts of things, and when you think of your choices in terms of opportunity cost, then you start to realize that every single choice you make has a cost. Even getting a free ice cream cone at Ben and Jerry's costs you the time it takes to wait in line.

Every time you make a choice, you're deciding against something else. In some cases, it may be a complete no-brainer. (In writing this blog, I'm giving up a chance to stick my tongue in the box fan on the window. Tough call.) But other times, you may be making choices without realizing what you're missing.

Stay tuned, because I'm sure that idea will pop up many times throughout the course of this blog. I'll try to keep it interesting by holding other economic discussions and pointing you in the direction of interesting economic topics being discussed elsewhere. And in between, I'm sure you'll be subject to rants on professors and other stuff you're more than welcome to skip. Thanks for reading!