INK DOES NOT WORK AND TASTES AWFUL. TERRIBLE PEN 1/10 WOULD NOT BUY AGAIN.

Mylan Pharmaceuticals has altered its price schedule for epinephrine auto-injector EpiPenⓇ. The wholesale price is now $365.16, up from around $50 this time last year. Naturally, this price change, unconnected as it is to the unit costs of production, has prompted a bit of moral outrage.

viz:

There's no reason an EpiPen, which costs Mylan just a few dollars to make, should cost families more than $600. https://t.co/rVWUlMxD0Q

— Bernie Sanders (@SenSanders) August 18, 2016

Quite true. Anaphylactic shock is as terrifying as it is swift. In cases of severe allergy, the windpipe clamps shut and if you're alone, you have to hope that your vision doesn't fade before you can reach your dose. I have been assured by competent, trustworthy health care professionals that lethal suffocation can be somewhat uncomfortable. One shot of epinephrine can relieve the worst of the symptoms almost immediately, and another administered 30 minutes later can relieve lingering issues. Consult a physician before use, and seek medical attention if an attack occurs.

Point is, for some folks, a single bee sting or a couple of peanuts is all that's required for permanent residence with John Cleese's infamous Norwegian Blue, but for the EpiPenⓇ. And it would indeed be a travesty if families had to pay up to a grand for the mistake of a kid accidentally getting a mouthful of Uncle Mike's pad thai. So is this the case? Is Mylan CEO Heather Bresch actually asking bog-standard customers to pony up a car payment per dose?

The short answer: yes, if.

The long answer: no, but.

The MY EPIPEN SAVINGS CARD™ is available to customers under the following restrictions (from the link; emphasis mine):

This SAVINGS card can be redeemed only by patients or patient guardians who are 18 years of age or older who are a resident of the United States and its territories. Not valid for cash paying patients (except for commercially insured patients without coverage for EpiPen® Auto-Injector) and patients who are covered by any state or federally funded healthcare program, including but not limited to any state pharmaceutical assistance program, Medicare (Part D or otherwise), Medicaid, Medigap, VA or DOD, or TriCare. This SAVINGS card is not health insurance. The SAVINGS card is not transferable and the amount of the benefit cannot exceed the patient’s out-of-pocket expenses. Cannot be combined with any other rebate/coupon, free trial, or similar offer for the specified prescription. Program expires 12/31/2016. Program managed by McKesson Corporation on behalf of Mylan Specialty L.P. Product dispensed pursuant to program rules and federal and state laws. Void where prohibited. The parties reserve the right to amend or end this program at any time without notice.

So if your insurance company covers EpiPen, your insurance company picks up the tab. If you pay by cash, you pick up the tab—unless your shiftless commercial insurer doesn't cover it, in which case Mylan has your back. It's a bit confusing, isn't it? Perhaps the wording is too difficult for journalists and politicians to parse, leading to all the pitchforks and the torches. I understand.

At any rate, it seems to me that what we have here is classic price discrimination. The savings cards means that insured patients who are still unable to pay can get their life-saving emergency epinephrine injections at (roughly) zero price, with institutional payers (insurance companies, states, the federal government, &c) absorbing the residual production costs. Put another way, it's precisely the same approach taken by the PPACA: end customers pay next to nothing, and the costs of care are socialized. Only now it's a hated pharmaceutical firm doing it, so we make all suitable preparations to punish the wicked heretic.

Then again, auto-injectors are not strictly bound by patent law, and epinephrine is a generic drug, so you can always just go shopping for alternatives. There's no law that says you have to buy the name-brand product.

Yet.

Poverty as Pollution: Buchanan's Basic Minimum Income

Are transfer payments euvoluntary? Don't be silly. Of course not. Don't be DAFT. They're plainly coercive, so asking about their euvoluntarity is facile. What we might want to consider is whether or not there's an arrangement in a reasonable choice set that is both less distortionary and less wasteful.

In The Bases for Collective Action (Collected Works of James Buchanan. Vol. 15. Liberty Fund p. 21), James Buchanan forwards the following:

Extending the notions of externality and environmental quality even more broadly, we can also encompass the potential role of collective action in providing for the relief of primary poverty. In one sense, the mere existence of very poor members reduces the overall environmental quality of any community. Any action aimed at removal of this poverty will impose an external benefit on all members of the community. There are clear gains to be made from cooperative or collective efforts to eliminate or at least to reduce poverty.

 In another essay (Social Insurance in a Growing Economy, ibid p.410), he argues for clear separation between the social insurance function and the poverty relief function. He was dismayed at the illiberal clumping of the two for both analytical and practical purposes. "One of the chief sources of crisis in the existing social security system is the observed tendency of politicians, especially in recent years, to confuse the achievement of social insurance objectives with the relief of primary and secondary poverty and to load the same set of institutions with these quite different burdens." With an economists' eye, this is plainly obvious. But what is obvious to the trained economist may be hazy or irrelevant to the typical voter.

And in the taxonomy of umbrella-twirling pedestrian intuition, far from the clipped cane-tapping of the prudential pocketwatch-checkers, caring for the poor engages more or less the same moral machinery as caring for the elderly. In both instances, we have examples of unfortunate outcomes: Skid Row panhandlery on the one hand, grandma eating cat food so that she can afford her heart medicine on the other. In both instances we have at least the presumption of collective action "failures" (remember that there are no solutions, only tradeoffs), and in both instances, we have an increasingly powerful taxation authority and a bountiful œconomy poised to clean up not merely our dunnage-strewn shores, but our drunkard-strewn boulevards.

So how about that basic minimum income? Mike has a piece published on the topic, and I've got a working paper on it, and we both motivate the discussion using poverty relief rather than old age insurance. In light of Buchanan's concerns and my hunch that in the moral intuition, OASDI and welfare get conflated, does the analytical argument for basic minimum income improve? Why or why not? Is a two-birds, one-stone approach inappropriate if it means that there should be significant efficiency gains to be had?

Or is consideration of this question meaningless if the core of the game is null? How would you buy out the bureaucracy?

Coercion and External Costs: Auckland Beast With Two Backs Edition

From our old pal Eric Crampton, something I gather must be a "problem" for undergrads: noisy dorm room canoodling. The GTM had a piece here a while back on side payments for dorm rooms at Duke. The relevant take-away from that story is that room accommodations for students tend to be part of bundled contracts: they're tied to attendance, and typically, no one raises a stink when the housing department leans a little to the thuggish side.

And why should anyone, so long as the conditions aren't too gulag-ish? The kids are out of the house for the first time in their lives, so they're happy. The parents just got one of their rooms back to use for their own externality generation, so they're happy, and the community sure doesn't want roving gangs of young adults churning the local rental markets, so they're, well, they're not unhappy. Universities can get away with a whole lot more coercion with 18-22 year old kids than they might with, say, people my age.

But officials still should probably let students find their own mutually beneficial solutions to common pool problems, right? Being especially rigid with room assignments seems peculiar. Roth has all these cool matching algorithms to perhaps make initial assignments better. You, know, maybe have something like OKCupid for dorm rooms, and then why not have exchanges or something for the fine tuning?

I suppose this is what they call a bleg: at your university, how do administrators determine room assignments? What could be done to make the process better? Is this even an important problem?

GDP vs. EE, Macro Policy Edition

Macro is hard. Remaining circumspect while you're doing it is harder yet. The peer-reviewed theoretical literature (or at least the papers I'm familiar with) seems eerily divorced from the agents under scrutiny, and the empirical work is a glass crowbar: nice to look at, but when you try to use it to move stuff around, it has a tendency to break. Perhaps more frustrating for regular folks, the public debate is esoteric, weirdly partisan, and boring as all get-out (with the occasional exception for rap videos).

Macro policy itself is not an exchange in the same sense as buying a taco or swapping credit default risk. Instead, it influences the environment in which these exchanges are made. Stimulus programs are passed under the justification that the government spending will ignite consumer spending, taking some slack out of idle resources. FOMC transactions put more current assets into circulation, lowering interest rates, which reduces borrowing costs, which I suppose is meant to make investment decisions more attractive? I'm not entirely clear on this point. Firms that make decisions underpinned by cheap paper strike me as imprudent, much the same way that families buying more housing than they can reasonably afford are imprudent. Also, TANSTAAFL: cheap credit is an intertemporal transfer.

So that's some of the baggage I bring with me. I'm a phantomweight in the macro arena though, scarcely in the audience let alone in the debate itself. I have no dog in the fight, so to speak. I am interested in marginal euvoluntary exchange though. And I'm interested in pedestrian intuitions. I assume that my regular reader(s) are too, else you wouldn't waste your time by reading me.

So how about it then? Let's assume that there is a chunk of commerce that does occur because and only because of government spending. The DoT plops down $26B on road construction that wouldn't have otherwise happened. Or the DoE pushes $15B into "Efficiency and Renewable Energy, Recovery," funding that otherwise would have sat idle, rusting in a field somewhere while discouraged workers' human capital depreciates on the couch watching daytime TV. Let's just assume for the sake of argument that proponents are right and the Broken Window Fallacy does not apply with fallow resources. Are these exchanges euvoluntary?

Maybe this question is misguided. Maybe the right answer is "it depends." How would you approach the question? What's the role of time, of discovery, of risk, of opportunity? When do cyclical effects become structural? When does the short term become the long term? Most importantly, how are ordinary citizens supposed to keep track of these questions when they're alienated from the discussion by dint of education, inept reporting, and strident disagreement between even the top echelon experts in the subject?

When the rule of law is working well, it gives regular folks a bit of certainty in a chaotic world. Rules closely observed serve ordinary people in their ordinary lives. The abrogation thereof serves whom exactly?

Procrustean GDP pursuit may well be oversold. Caveat subfragator. These are important questions, don't hesitate to ask them.

Euvoluntary Exchange and its Outcomes: An Inquiry into Basic Minimum Income Level Determination

Being poor is no picnic. Or maybe it is a picnic, but one where the potato salad has gone bad and you get swarmed by fire ants and furious wasps and it starts raining and you locked your keys in the car and your phone's batteries are dead so you have to walk 5 miles back to town only to find that the towing company is closed for the long weekend.

But maybe you don't mind the bugs so much and you don't like potato salad anyway, and the rain feels refreshing. Maybe you enjoy the exercise and maybe this little town is charmingly rustic in just the way you love and maybe it turns out that when you spend the weekend at the local inn, you find the love of your life working as a clerk in the town courthouse.

Experience is subjective. So is poverty. Take it from a guy who lived for no short time well below the official government-determined poverty line.

Paid Queue Jumping in the Enchanted Kingdom

The story: wealthy Manhattanites pay disabled kids to pose as family members to get preferred positions in line.

Euvoluntary or not? The rich New Yorkers (and what better way to rile up anti-elite sentiments than to mutter "Upper East Side"?)  are better off (presumably their time is valuable even when on vacation?), the disabled faux children are better off (making over a grand a day slumming it at Disneyworld? Sign me up) and the park itself is no worse off, assuming that the marginal patron isn't so offended as to stay home. And what of that marginal patron? They have to wait a little bit longer, all those little bits add up, and this whole thing probably ends up a wash overall, just a transfer like in any other market.

Maybe...

Queue position is a scarce good, but it's one imposed by the organization of the park. Is it fair to say that it's natural in the same sense the relative scarcity of diamonds or baleen whales is natural or is it artificial the same way immigration visas are artificial? A person (more likely a planning committee) made the decision about how many passengers a particular ride would be able to accommodate over the life of the ride and designed accordingly. In this sense, the queue is artificial, but they also designed it with profit maximization in mind, which means they were doing their best to match customer satisfaction with the fixed costs of ride design and construction. I doubt that this queue-hopping was anywhere in the original plans.

So which is it? Natural or artificial? And however you answer the question, does this practice offend your sense of justice? Of fairness? Of euvoluntarity?

Moral Hierarchy Based on Wealth?

Interesting.  The left gets it silk boxers all twisted into slip-knots over disparities in wealth and how that causes problems with "access" to primary goods.

But then they go and set up moral rules that actually require great wealth before one can act morally.  In other words, maybe it's a problem that only rich people get to join country clubs.  But it is CERTAINLY a problem when we set up arbitrary (and economically pointless) rules that impose moral judgments based on economic capacity. 

Case in point:  you are morally superior if you can drive your Volvo (okay, nowadays it's a Prius) to the organic farmers' market and pay double price for local vegetables grown extremely inefficiently.  But of course poor people can't do any of those things.  SMUGTIME!  Look at me! I'm a rich liberal, and I am buying organic!  I'm better than those poor people I claim to love.

My good friend Marc Bellamare goes off. 

Badhwar on Market Justice

Neera K. Badhwar on Just Market Exchange. Money quote:

[T]here is nothing unjust about raising the price of a commodity when it is in short supply, and lowering it when it is abundant. Doing so neither takes advantage of people by making grossly disproportionate exchanges, nor treats them as mere means to the seller’s own ends. Nor is it unjust in any other way that I can see. Rather, it is the only economically and morally rational way to act.

 Nailed it.

Grand Game: Wealth Distribution Video Edition

There's a video making the rounds. I saw it thanks to Mr. Sulu. Lots of good discussion points to be had, particularly for euvoluntaryists. Here's the clip:




Now, before your jimmies get too rustled, consider that some fraction of the top end of that "actual" distribution is there thanks to proper euvoluntary exchange, but probably quite a bit more is sitting there thanks to favorable government policies.

The question then... careful analysis is mentally taxing, so to what extent should thoughtful people see this and cry foul? Is is reasonable to grab the pitchforks over a statistical distribution? Is it relevant how wealth is generated?

The fox is already guarding the henhouse, people. Should we really sharpen his teeth and give him night-vision goggles?

NGO PBJ

I caught a bit of a piece on NPR about a project in Haiti to combat malnutrition. There's a process for making enriched peanut butter that provides high-quality protein (this means that the protein contains all the essential amino acids, a rarity in plants) and enough lipids and glucose for basic nutrition.

So a charity organization called Meds and Food for Kids (MFK) builds a processing plant in a little town on the North Coast of Haiti, Cap-Haitien. Another charitable organization, Partners in Health (PiH) also builds a factory, this one bigger and up in the highlands where the peanut farms are. Both of these ventures are quasi-private, supported by charitable donations. Both NGOs insist on buying local peanuts, despite higher prices, using similar reasoning underpinning most locavore movements (keeping the money in the community or something).

Most economists would agree that this is inefficient, but opinions might be split on whether or not the inefficiency is tolerable. The Duflo argument that poverty and malnutrition retards growth opportunity is compelling and Haiti is well-known as a development basket case. Foreign businesses in Haiti have a storied history of being charged with exploitation, so this is an interesting test case for euvoluntary intuitions.

Since MFK and PiH are quasi-charitable orgs, how do you imagine wealthy westerners would react if Rosefield Packing Co Ltd would open a for-profit venture on the island? Suppose that this firm, which has been making peanut butter since 1933, produces the peanut paste at lower cost, using its international supply chain. Would it be euvoluntary or would folks cry exploitation once again? In equilibrium, what would the BATNA be? Bear in mind that MFK is already complaining that the PiH plant is threatening their operation. How would Skippy change the moral landscape?

There Is No Arizona; No Painted Desert, No Sedona

Friend of EE Pam Stubbart links to this article in The Chronicle of Higher Education. An adjunct at a small Arizona community college is disgruntled at receiving nutrition assistance from the state. She studied hard to earn that PhD., so it's offensive she can't make a living without having to shoulder crushing student debt, pittance wages and draconian cuts by state legislators. 

Richard Epstein on Inequality

Is inequality unjust? Does it matter how the inequality came about, or is it prima facie unjust? And does it matter if the least well off are benefited by the exchanges that lead to the inequality? Richard Epstein ably makes the argument for why Rawlsians should be pro-market, and accept more inequality than they commonly countenance...

Watch Does U.S. Economic Inequality Have a Good Side? on PBS. See more from PBS NewsHour.

(nod to Tim Doran for the link)

The Philosophical Problem of "Voluntary" Exchange

A brief and rather hostile (though fair) assessment of the idea that exchange could ever be "truly" voluntary. Or, in my terms, euvoluntary.

Both posts, the one I linked and the sequel, are worth reading. The RYC's bit on coercion is also useful.

Cohen does, as the author notes, raise a serious challenge. (If you want to read and see why, here...)