October 8, 2015

“[P]harmaceutical companies … make out like bandits from the existence of the patent system”

Filed under: Bureaucracy, Business, Health, Law, USA — Tags: , , , — Nicholas @ 05:00

The current US patent system is set up to create and maintain — for a limited time — monopolies that can be exploited by pharmaceutical companies:

The Wall Street Journal has a puzzling piece complaining about how the pharmaceutical companies seem to make out like bandits from the existence of the patent system. What puzzles is that the entire point and purpose of the patent system, in an economic sense, is so that inventors of things can make out like bandits. The background problem is that of public goods, something I’ll explain in a moment. That problem leads us to thinking that a pure free market in things which are public goods isn’t going to work as well as something a little different. So, we design something a little different. And the point and purpose of our design is so that people who innovate can make vast mountains of cash out of having done so.

It’s then more than a bit odd to point out that our system enables people who innovate to make vast mountains of cash.


Which brings us to the subtlety of those pricing decisions. With drugs, pharmaceuticals, close enough the cost of manufacturing a dose is zero. All of the costs go in the original research, the clinical testing (the lion’s share) and getting it through the FDA. Profit is therefore determined, since marginal production costs are zero (they’re not, accurately, but close enough for this comparison), by gross revenue. And we want to maximise the incentive for people to innovate, that’s the very reason we’ve got this patent system in the first place, and thus we would rather like the pharma companies to be maximising revenue.

And thus, from this economic point of view, we should be quite happy with people raising their prices. Demand does fall as they do so, yes, but as long as gross revenue increases, the price rises more than compensating for the fall in unit demand, then we should be happy with the way the system is working. Gross revenue is being maximised, profits are being maximised, incentives to innovate are being maximised. That’s what we want our system to do after all.

Far from being worried about this price gouging we should be welcoming it. Because, obviously, someone making bajillions out of having innovated a drug to cure a disease increases the incentives for many other people to go and invest bajillions of their own to cure other diseases. Far from complaining about it we should be celebrating the system working.

October 3, 2015

Great Britons: Isambard Kingdom Brunel Hosted by Jeremy Clarkson – BBC Documentary

Filed under: Britain, History, Railways, Technology — Tags: , , — Nicholas @ 02:00

Published on 16 Jul 2014

Jeremy Clarkson follows in the footsteps of the great engineer Isambard Kingdom Brunel whose designs for bridges, railways, steamships, docks and buildings revolutionised modern engineering. But his boldness and determination to succeed often led him to repeatedly risk his own life. Jeremy Clarkson, discovers for himself just how terrifying that was.

H/T to Ghost of a Flea for the link.

October 2, 2015

An Orgy of Innovation (Everyday Economics 5/7)

Filed under: Economics — Tags: , , — Nicholas @ 03:00

Published on 20 Apr 2015

The list of famous inventions from the last few centuries is long, and you may even be making use of one right now — laptops, smartphones, tablets, and televisions, for instance. There are countless unsung improvements, too, that make our daily lives much easier. We’ve all benefited from zip top sandwich bags, twist bottle caps, and long-lasting batteries, to name a few!

The economic historian Deirdre McCloskey coined the term “innovationism” to describe the phenomenal rise in innovation over the past couple hundred years. While there have always been inventors and innovators, that number exploded after the eighteenth century, contributing to what we’ve described in previous videos as the “Hockey Stick of Human Prosperity.”

Why has innovation grown so rapidly? Economist Douglass North argues it has to do with institutions such as property rights, non-corrupt courts, and rule of law, which lay the foundation for innovation to take place. Others attribute the rise to factors such as education or access to reliable energy. McCloskey argues that what really kicked innovation into high gear is a change in attitude — ordinary people who once celebrated conquerers and kings began to celebrate merchants and inventors.

In this video, we discuss these ideas further. After all, a better understanding of what drives innovation could help poor countries that still live on the handle of the “Hockey Stick” reach a much greater level of prosperity.

September 7, 2015

New Lanark

Filed under: Britain, Economics, History — Tags: , , — Nicholas @ 03:00

In The Register, Bill Ray takes a geek’s-eye-view of the town of New Lanark, a key place in the early industrial revolution:

Nestled in the Clyde Valley the village owes its existence to the falls that were harnessed to refine raw cotton sent in from the colonies: a picture-postcard image from a time when Britain was the factory of the world.

But for all its industrial heritage New Lanark is a long way from being a typical “dark satanic” mill, as it marks the end of that time and the dawning of a better age.

Visit the village today and you can see the big machines that kept the empire running. Enormous water wheels; later supplemented by steam engines, connected by belts and ropes to machines which turned raw cotton into usable thread and fabric. However, it’s not industrial history that is celebrated at New Lanark, rather a social revolution, and one driven by one man whose ideas created the working life as we understand it today.

The man was Robert Owen, who, in 1799, bought New Lanark and immediately embarked on his “grand social experiment”. His radical ideas, such as refusing to employ children, providing medical insurance, and educating the workforce, were ridiculed by his competitors who couldn’t see the value in teaching children, let alone adults. But Owen believed that industry should serve the betterment of all men, not just those who owned the factories.

It worked too, rather to the surprise of his peers. New Lanark was a successful mill and profits rose steadily under the beneficent command of Owen. It could be argued, perhaps, that New Lanark would have been even more profitable without the social agenda, but every afternoon at five we should all be grateful for his reforms that made our working lives what they are:

    “Eight hours daily labour is enough for any human being, and under proper arrangements sufficient to afford an ample supply of food, raiment and shelter, or the necessaries and comforts of life, and for the remainder of his time, every person is entitled to education, recreation and sleep”

Not that the workers at New Lanark did quite as well as we do; their working day ran ten and a half hours, but once mealtimes had been deducted it was approaching eight and certainly much better than the conditions in other mills around the country.

June 29, 2015

More on the “self-driving truck” issue

Filed under: Business, Economics, Railways, Technology, USA — Tags: , , , , — Nicholas @ 02:00

In the comments to this post, Tom Kelley provided a worthwhile digression on the topic that I felt deserved a wider audience, so with his permission, here’s Tom’s response:

Given that the trucking industry has been my sandbox for quite some time, I can safely extend Megan’s prognosis to also include the low long-term risk of job losses due to self-driving vehicles.

Frankly, I have to be wary of any “expert” who can’t even get the name of his source (the American Trucking Associations — yes, plural — not the American Trucker Association) transcribed correctly.

Apart from the myriad technical issues standing in the way of driverless trucks, the insurmountable barrier is anti-competitive trucking regulations passed on behalf of the government’s favorite white elephant, the rail industry. Invariably, these regulations are tarted up under some guise of safety (Let’s see, was it a truck or a train that blew the town of Lac-Mégantic off the map??? Hmm).

The bottom line is that any change that would have the slightest possibility of making trucking more productive is quickly met with massive dis-information campaigns, and even more massive lobbying from the rail industry. Even the most minor dimensional changes designed to reflect the current realities of truck freight transportation stand little if any chance of making it past regulators with a permanent disdain for free enterprise.

We can’t have electronically actuated brakes on trucks because the regulators have no grasp of brakes or electronics, and somebody wants to replace the driver with electronics? Seriously? Of course these same folks seen to have no problem flying cross-country at 500 MPH in a commercial jetliner that is literally flown by wire.

And even if the government types were perfect actors in this little tale, then you have the American tort law system, run/regulated by, for, and about the trial lawyers. Even with professional truck drivers who can deftly avoid putting incompetent car drivers on their way to a Darwin award, hundreds of four-wheeler drivers still manage to commit suicide-by-truck every year, followed quickly by their otherwise destitute estates suing innocent trucking companies for millions.

Can’t you just hear the jury summation now: “The eeevvilll trucking company wanted to save a few pennies by outsourcing the driver’s job to a microchip! The must be punished! My client, a fourth cousin of the homeless man who jumped off a bridge in front of a truck MUST be awarded $10 million for the pain and suffering from losing a relative he never met. No justice, no peace!”

No insurance company in their right mind would insure a driverless truck for real-world operation.

There’s no question that the technology is available to make the concept work, I was on-board numerous autonomous vehicles of all sizes back in 1997.

It will take several major societal shifts before any serious degree of autonomy makes it into real world trucking operations.

June 26, 2015

The self-driving truck won’t displace many human truck drivers for years to come

Filed under: Business, Economics, Technology, USA — Tags: , , , , — Nicholas @ 02:00

I’m far from being a Luddite, but I find Megan McArdle‘s analysis of the low short-to-medium term risk of job losses due to self-driving vehicles to be pretty convincing:

… my objections are actually to the understanding of the trucking industry works and of self-driving vehicles. Fully automated trucks, with no drivers at all, are probably going to arrive later than Santens thinks, take longer to roll out than he projects, and displace fewer workers than he thinks they will. I’m not saying it will never happen. I’m just skeptical that this is going to be a major policy problem in the next two decades.


Start with what truckers do, and how many of them there are. Santens quotes the American Trucker Association to get 3.5 million. The Bureau of Labor Statistics puts that figure a bit lower, around 2.8 million. More importantly, only 1.6 million of those are long-haul truckers. The rest are “driver/sales” employees or “Light truck or delivery services drivers.” Those are short-haul services that will not quickly be replaced by automated cars, both because chaotic urban roads are harder for autonomous vehicles to handle and because part of the job is loading and unloading the truck (something that long haul drivers may also do).

Also: Why would we assume that the advent of driverless trucks would be bad for trucking support jobs? Those folks are doing stuff like maintenance or loading that still has to be done. Moreover, other jobs will be created, in designing and maintaining the new systems. Someone has to map all those roads.

But I think it will be a while before we get to a fully autonomous vehicle with no people in it. The “driverless truck” that Santens links is not actually driverless; it’s partially autonomous. If it foresees something it can’t deal with, such as heavy snow, it signals to the driver to take over; if the driver doesn’t respond, it slows to a stop. That’s an improvement in the lives of truck drivers, not a job killer.

June 25, 2015

A different kind of crowd-funding

Filed under: Economics, Media — Tags: , , — Nicholas @ 04:00

Christopher Taylor starts off by praising to the skies a movie I’ve never seen … but he goes on to discuss a variant of crowdfunding that might be a significant change to how movies are made:

… the big studios are corporations that answer to a board of stockholders. And the stockholders aren’t interested in great film making, they are interested in making money off their stocks.

So the Broken Lizards guys went to crowdfunding to raise money for their film, and have done quite well. They did so well that they don’t need a big bunch of studio dollars and interference to make the movie.

But here’s where it gets really interesting. See, crowdfunding sites raise money by offering goodies and the joy of helping a product succeed. They are not investment sites so much as a chance to be a patron of something you want to see on the market as well as a chance to get something from the company. Free copies, a mention in the book, a token in the game named after you, and so on.
Well that’s all about to change in a big way.

Jay Chandrasekhar writes:

    At our meeting, I vented to Slava about my perception of crowdfunding. I told him I wished people could invest in the movie and then own an equity piece of the backend. He said, “I totally agree.” That’s when we hit it off. He said that there is legislation in Washington, as we speak, that if signed, will make equity-based crowdfunding a reality. Think about that.

I’m with Jay here. Think about that. Its very likely that soon you will be able to donate to a crowdfunded project and get money back from its sales. In other words, it will actually be an investment, not just patronizing.

This is a huge key in changing the way that media gets made. All those projects the studios and TV channels pass on because it isn’t hot or doesn’t make sense to them? If this happens, they can have a chance.

June 19, 2015

Even the Fed pays attention to the rise of craft brewing

Filed under: Business, USA — Tags: , , , — Nicholas @ 03:00

The Federal Reserve Bank of Richmond had an interesting article on the rise of craft beer by Jamie Feik and Joseph Mengedoth:

In many places across the country, it’s hard not to notice the shift in product offerings at local bars and restaurants and in the beer aisle of the grocery store. The colorful, ornate tap handles of craft brewers have joined the classic blue, red, and silver posts of the traditional powerhouses, and bartenders play the role of consultant purveying the selections. Shoppers who once stood in the beer aisle trying to decide how many cans of beer to buy now stand in front of coolers filled with different brands and styles of beer available in single bottles, packs of four, six, or 12, and even on tap in a growing number of stores. Many of them have been made at a brewery down the street; according to the Brewer’s Association (BA), the trade association that represents the craft beer industry, approximately 75 percent of the drinking-age population in the United States lives within 10 miles of a brewery.

In 2014, there were 615 new craft breweries that opened, pushing the number in the United States to 3,418, more than twice the number that existed just five years earlier. The BA defines a craft brewery as one that produces fewer than 6 million barrels a year, is less than 25 percent controlled by an alcoholic beverage industry member that is not itself a craft brewer, and produces a beverage “whose flavor derives from traditional or innovative brewing ingredients and their fermentation.” The ownership restriction excludes the craft-style subsidiaries — such as Shock Top, Goose Island, Leinenkugel, and Blue Moon — of large brewers like Anheuser-Busch InBev and MillerCoors (the two largest brewers in the United States).

Although craft beer remains a relatively small segment of the market, accounting for only 11 percent of the beer produced in the United States in 2014, the segment is growing rapidly. Craft beer’s share of production has more than doubled since 2010, when it was just 5 percent. In 2014, craft beer sales volume increased nearly 18 percent, according to the BA, versus just 0.5 percent for the overall beer industry. The retail dollar value of craft beer grew 22 percent in 2014, while the total U.S. beer market increased only 1.5 percent in value.

The growth of small breweries runs counter to the trend of consolidation in the beverage industry that persisted through much of the 20th century. Why are craft brewers thriving?

June 15, 2015

The “Kitchen Debates” of 1959

Filed under: Economics, History, USA — Tags: , , , — Nicholas @ 03:00

B.K. Marcus explains how ice cream was the secret weapon that won the Cold War:

Richard Nixon stood by a lemon-yellow refrigerator in Moscow and bragged to the Soviet leader: “The American system,” he told Nikita Khrushchev over frosted cupcakes and chocolate layer cake, “is designed to take advantage of new inventions.”

It was the opening day of the American National Exhibition at Sokol’niki Park, and Nixon was representing not just the US government but also the latest products from General Mills, Whirlpool, and General Electric. Assisting him in what would come to be known as the “Kitchen Debates” were attractive American spokesmodels who demonstrated for the Russian crowd the best that capitalism in 1959 had to offer.


“Don’t you have a machine,” he asked Nixon, “that puts food in the mouth and presses it down? Many things you’ve shown us are interesting but they are not needed in life. They have no useful purpose. They are merely gadgets.”

Khrushchev was displaying the behavior Ludwig von Mises described in The Anti-Capitalistic Mentality. “They castigate the luxury, the stupidity and the moral corruption of the exploiting classes,” Mises wrote of the socialists. “In their eyes everything that is bad and ridiculous is bourgeois, and everything that is good and sublime is proletarian.”

On display that summer in Moscow was American consumer tech at its most bourgeois. The problem with “castigating the luxury,” as Mises pointed out, is that all “innovation is first a luxury of only a few people, until by degrees it comes into the reach of the many.”

It is appropriate that the Kitchen Debate over luxury versus necessity took place among high-end American refrigerators. Refrigeration, as a luxury, is ancient. “There were ice harvests in China before the first millennium BC,” writes Wilson. “Snow was sold in Athens beginning in the fifth century BC. Aristocrats of the seventeenth century spooned desserts from ice bowls, drank wine chilled with snow, and even ate iced creams and water ices. Yet it was only in the nineteenth century in the United States that ice became an industrial commodity.” Only with modern capitalism, in other words, does the luxury reach so rapidly beyond a tiny elite.

“Capitalism,” Mises wrote in Economic Freedom and Interventionism, “is essentially mass production for the satisfaction of the wants of the masses.”

May 14, 2015

Moore’s Law challenged yet again

Filed under: Business, History, Technology — Tags: , — Nicholas @ 02:00

In Bloomberg View, Virginia Postrel looks at the latest “Moore’s Law is over” notions:

Semiconductors are what economists call a “general purpose technology,” like electrical motors. Their effects spread through the economy, reorganizing industries and boosting productivity. The better and cheaper chips become, the greater the gains rippling through every enterprise that uses computers, from the special-effects houses producing Hollywood magic to the corner dry cleaners keeping track of your clothes.

Moore’s Law, which marked its 50th anniversary on Sunday, posits that computing power increases exponentially, with the number of components on a chip doubling every 18 months to two years. It’s not a law of nature, of course, but a kind of self-fulfilling prophecy, driving innovative efforts and customer expectations. Each generation of chips is far more powerful than the previous, but not more expensive. So the price of actual computing power keeps plummeting.

At least that’s how it seemed to be working until about 2008. According to the producer price index compiled by the Bureau of Labor Statistics, the price of the semiconductors used in personal computers fell 48 percent a year from 2000 to 2004, 29 percent a year from 2004 to 2008, and a measly 8 percent from 2008 to 2013.

The sudden slowdown presents a puzzle. It suggests that the semiconductor business isn’t as innovative as it used to be. Yet engineering measures of the chips’ technical capabilities have showed no letup in the rate of improvement. Neither have tests of how the semiconductors perform on various computing tasks.

May 3, 2015

QotD: Innovations from foreign shores

Filed under: Britain, Humour, Quotations — Tags: , , — Nicholas @ 01:00

We had ridden for about two miles, when we noticed, a little ahead of us in a space where five ways met, a man with a hose, watering the roads. The pipe, supported at each joint by a pair of tiny wheels, writhed after him as he moved, suggesting a gigantic-worm, from whose open neck, as the man, gripping it firmly in both hands, pointing it now this way, and now that, now elevating it, now depressing it, poured a strong stream of water at the rate of about a gallon a second.

“What a much better method than ours,” observed Harris, enthusiastically. Harris is inclined to be chronically severe on all British institutions. “How much simpler, quicker, and more economical! You see, one man by this method can in five minutes water a stretch of road that would take us with our clumsy lumbering cart half an hour to cover.”

George, who was riding behind me on the tandem, said, “Yes, and it is also a method by which with a little carelessness a man could cover a good many people in a good deal less time than they could get out of the way.”

George, the opposite to Harris, is British to the core. I remember George quite patriotically indignant with Harris once for suggesting the introduction of the guillotine into England.

“It is so much neater,” said Harris.

“I don’t care if it is,” said George; “I’m an Englishman; hanging is good enough for me.”

Jerome K. Jerome, Three Men on the Bummel, 1914.

April 20, 2015

The Wright Brothers – early practitioners of lawfare

Filed under: Law, Liberty, Technology, USA — Tags: , , , — Nicholas @ 03:00

David Warren casts his thoughts into the air, but a hundred years ago the Wright Brothers’ lawyers would have been doing their legal damnedest to bring him back down to earth in a hurry:

Work on powered, controlled flight in the United States was far behind that in France, or England, but fell farther behind thanks to the Wright brothers. Fixated on the problem of converting invention into wealth, they pursued rival aviators around the USA with teams of lawyers. Their numerous, voluminous, cumbersome lawsuits were based on often fanciful patent claims, emerging from their own intensely secretive research.

One thinks for instance of the great aviator, Louis Paulhan (first to fly London to Manchester), who arrived with two Blériot monoplanes and two Farman biplanes to give flying demonstrations across the USA. Amazed at the workings of the American judicial system, but ignoring legal injunctions to prevent them from flying their machines, they took every prize at the Los Angeles Air Meet in January 1910, setting new records for altitude and endurance.

The Wrights were present, there as elsewhere, though never competing. They and their gaggle of lawyers followed Paulhan and the other foreigners around the country, serving them with process papers, and demanding unbelievably huge sums to call off their dogs, in vile and obvious attempts at extortion. And then they’d hit the local impresarios with additional suits to impound all the cash from ticket sales, &c. Truly: vicious and contemptible men.

To avoid fines or imprisonment in backwoods American jurisdictions, the visitors took to giving their demonstrations entirely for free, but still the lawsuits kept coming. Finally they gave up and went home.

And there’s even a maple-flavoured sidelight in the story:

Part of the reason for Canada’s early advances in aviation (first flight of the Silver Dart at Baddeck in Cape Breton, with its ingenious ailerons, &c) was the migration of American inventors, such as the brilliant motor-mechanic Glenn Curtiss, to safe territory away from the corrupt and unpredictable U.S. courts.

This, I suspect, was among the reasons that the spectacularly inventive Scotchman, Alexander Graham Bell, re-located from his grand mansion in Washington, DC. At first he went north, back to Canada (where he had settled before), only for the summers; but soon he was staying through the winters, too. Not only in flight, but in all the many other areas of his pioneering work (he invented the telephone, &c), he was afflicted with lawsuits from American cranks, with those dollar signs twirling in their eyes and the slick lawyers lining up behind them, ready to exploit a patent regime wide open to political manipulation. For apart from the beauty of the Bras d’Or landscape, Bell was back under the protection of British Common Law.

April 16, 2015

Measuring productivity in the modern economy

Filed under: Economics — Tags: , , , — Nicholas @ 03:00

Tim Worstall on how our traditional economic measurements are less and less accurate for the modern economic picture:

… in the developed countries there’s a problem which seems to me obvious (and Brad Delong has even said that I’m right here which is nice). Which is that we’re just not measuring the output of the digital economy correctly. For much of that output is not in fact priced: what Delong has called Andreessenian goods (and Marc Andreessen himself calls Mokyrian). For example, we take Google’s addition to the economy to be the value of advertising that Google sells, not the value in use of the Google search engine. Similarly, Facebook is valued at its advertising sales, not whatever value people gain from being part of a social network of 1.3 billion people. In the traditional economy that consumer surplus can be roughly taken to be twice the sales value of the goods. For these Andreessenian goods the consumer surplus could be 20 times (Delong) or even 100 times (my own, very controversial and back of envelope calculations) that sales value.

We are therefore, in my view, grossly underestimating output. And since we measure productivity as the residual of output and resources used to create it we’re therefore also grossly underestimating productivity growth. We’re in error by using measurements of the older, physical, economy as our metric for the newer, digital, one.

In short, I simply don’t agree that growth is as slow as we are measuring it to be. Thus any predictions that rely upon taking our current “low” rate of growth as being a starting point must, logically, be wrong. And that also means that all the policy prescriptions that flow from such an analysis, that we must spend more on infrastructure, education, government support for innovation, must also be wrong.

April 14, 2015

Patently ridiculous, in one image

Filed under: Bureaucracy, Law, Technology, USA — Tags: , — Nicholas @ 03:00

Total US patents issued annually 1900-2014

H/T to Veronique de Rugy, who explains that much of the increase in “patents for trivial and non-original functions” can be traced back to the creation of one particular court.

April 2, 2015

How do we measure prosperity? Badly

Filed under: Economics, History, Technology — Tags: , — Nicholas @ 05:00

At Coyote Blog, Warren Meyer points out that we do not have a useful way to measure prosperity:

GDP growth and unemployment reduction are terrible measures. Just to give one example, these measures looked fabulous in WWII. But the average person living in the US had access to almost nothing — they couldn’t buy anything under rationing, they couldn’t travel for leisure, etc. GDP looked great because we were building stuff and then blowing it up, the economic equivalent of digging a hole and filling it in (but worse, because people were dying). And unemployment looked great because we had drafted everyone and sent them off to get shot.


How do we take into account that even if a person has the same income as someone in 1952, they are effectively wealthier in many ways due to access to medical procedures, travel, entertainment, electronic devices, etc?

Somehow we need to measure consumer capability — not just how much raw money one has but what can one do with the money? What is the horizon of possibilities? Deirdre McCloskey tends to eschew the term capitalism in favor of “market-tested innovation.” I think that is a pretty powerful description of our system. But if it is, we really are only measuring the impact of productivity and cost-reduction innovations. How do we measure the wealth impact of consumer-empowerment innovations like iPhones? Essentially, we don’t. Which, by the way, may be one reason our current crappy metrics say we have growing income inequality. With our current metrics, Steve Jobs’ increase in wealth is noted in the metrics, but the metrics don’t show the rest of us getting any wealthier by the fact that we can now have iPhones (or the myriad of competitors the iPhone spawned). The consumer surplus from iPhones undoubtedly dwarfs the money Jobs made, but it doesn’t show up in any wealth calculations.

Older Posts »

Powered by WordPress