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Scott Sumner vs. Paul Romer on the soaring rate of opioid deaths (& regulation in general)
See
Paul Romer's second critique of economics. Excerpt:
"The rest of the essay does indeed focus on arguments claiming that
deregulation in pharmaceuticals and finance led to big problems.
Unfortunately, the arguments are vague and unpersuasive. He begins by
blaming drug deregulation for the soaring rate of opioid deaths, which
recently reduced life expectancy in the US. But how was this caused by
“deregulation”? The worst of the opioid crisis occurred after the
government tightened regulations on drugs like Oxycontin, and people
switched to (highly regulated!) alternatives like heroin and fentanyl.
It was actually regulations forcing these drugs into the
underground economy where there are no quality controls that prevented
people from getting safe doses of those alternatives, and overdose
deaths soared as a result.
But let’s say I’m wrong, and that the approval of Oxycontin was the
core mistake here. What does that decision have to do with
“deregulation”? After all the FDA does regulate drugs like Oxycontin.
Here’s Romer:
Imagine making the following proposal in the 1950s: Give
for-profit firms the freedom to develop highly addictive painkillers and
to promote them via sophisticated, aggressive, and very effective
marketing campaigns targeted at doctors. Had one made this pitch to the
bankers, the lawyers, and the hog farmer on the Board of Governors of
the Federal Reserve back then, they would have rejected it outright. If
pressed to justify their decision, they surely would not have been able
to offer a cost-benefit analysis to back up their reasoning, nor would
they have felt any need to. To know that it is morally wrong to let a
company make a profit by killing people would have been enough.
Unless I’m missing the point, this seems like a very weak argument.
First, in the 1950s there weren’t even restrictions on cigarette use.
People were more tolerant of risk back then. Second, the whole argument
for “regulation” is that average people can’t make intelligent
decisions on what drugs to buy, and thus we need experts at the FDA to
determine what’s appropriate. And yet Romer contemplates asking the
Board of Governors at the Fed what they think of Oxycontin. What does
this example show? Why would the Fed regulate drugs? Maybe Romer
merely meant that if you ask average people with no expertise in health
care, like Fed officials, they’d see the obvious foolishness of
approving Oxycontin. But then why not use average people in the
example, why Fed officials? I don’t get it.
I don’t think that it’s even true that Oxycontin was obviously a
foolish drug to approve. If it was, why did the FDA approve it? More
importantly, if Romer’s correct then he’s actually making an argument
for getting rid of the FDA and letting average people decide what is
safe. Maybe we could have a referendum on whether to approve Oxycontin,
instead of having the decision made by the “experts”, by the
“philosopher kings” at the FDA. Romer is engaging in a sort of populism
here, which doesn’t seem entirely sincere to me. Regulation of drugs
is inherently paternalistic, it’s elitist. But that’s what Romer wants,
isn’t it?
He also doesn’t explain why if Oxycontin should never have been
approved, the FDA did not see what was (he thinks) obvious to ordinary
people. And what exactly is the argument here—that painkillers should
not be sold? What about cancer victims in extreme pain? Or is the
argument that it should not have been widely prescribed? But that’s a
failing of the medical profession, not economists promoting
“deregulation”. (I use scare quotes, because the health care industry
has most certainly not been deregulated.) We could punish doctors who
overprescribe Oxycontin, but that regulation has produced horrible side effects. So what’s the plan?
To summarize, it seems weird to blame “deregulation” for problems in a
highly regulated industry, which might have been caused by regulators
who often refuse to approve new drugs making a bad choice in a
particular case (Romer’s view) and might have been caused by the
regulations themselves, which pushed people into even more dangerous
drugs (my view.)
The DEA is one of the most evil organizations in American history,
presiding over a war on drugs that has put 400,000 Americans in prison
and resulted in countless deaths. Foreign countries like Mexico have
been destabilized, and murder rates have skyrocketed. The DEA is also a
major abuser of the human rights of American citizens, stealing their money and breaking into their homes and shooting innocent people. But Romer discusses the DEA as if it’s a force for good:
And when the Drug Enforcement Administration finally
tried to limit the distribution of these painkillers, pharmaceutical
companies launched a massive lobbying effort
in favor of a bill in Congress that would strip the DEA of the power to
freeze suspicious narcotics shipments by drug companies. It is a safe
bet that these lobbyists made their arguments to Congress in the
language of growth, incentives, and the danger of innovation-killing
regulations. The push succeeded, and the DEA lost one of its most
powerful tools for saving lives.
And then there’s this:
Of course, during earlier eras, regulators allowed many
industries to profit massively from products known to be harmful; Big
Tobacco is the most obvious example.
Is Romer actually saying that cigarettes should be banned? How did
prohibition of alcohol work? How about the prohibition of pot, cocaine
and heroin? If you are going to argue against deregulation, pointing to
the set of regulations called the war on drugs is absolutely the last
place you want to go.
Then Romer mentions Greenspan’s support for deregulation of finance,
which he later regretted. But actual experts on regulation of financial
regulations (and Greenspan is most certainly not an expert) understood
that FDIC, too-big-to-fail, the GSEs and other regulations were creating
moral hazard, leading to way too much risking taking in the financial
sector. Numerous free market economists (including me) pointed this
out. After the banking crisis of the 1980s (almost entirely created by
FDIC and FSLIC), there was an increase in regulation. I argued
(correctly) that we had not solved the problem and that it was only a
matter of time until it happened again. Of course Dodd-Frank also
failed to address this issue. Regulations encourage risk-taking. True
deregulation would reform FDIC so that banks didn’t use insured deposits
to make risky loans.
Then there’s an example of some unethical behavior at Goldman Sachs,
which seems to have nothing to do with economists promoting
deregulation. It’s sort of thing you normally get in a left wing
essay—anything bad that happened in a country called “capitalist” shows
the evils of capitalism. I don’t think Romer accepts the left wing
critique of capitalism, but he is using their sloppy arguments in parts
of this essay. Financial firms also engage in unethical behavior in
regulated systems. Even worse, the activity Goldman Sachs engaged in
was “regulated”. They had to pay a massive fine for violating these
regulations. Regulation can never stop all unethical behavior; at best
it can punish this behavior. And that’s what happened here. The system
worked; bad behavior was punished.
Not surprisingly, there is no discussion of how monetary policy
created the Great Recession. But even economists who disagree with
Romer suffer from the same blind spot on monetary policy. More
importantly, there’s no evidence that deregulation played a significant
role in the crisis. Actual examples that people occasional cite, such
as repeal of Glass-Steagall, did not have any significant impact on the
crisis.
Here’s Romer’s conclusion:
The alternative is to make honesty and humility
prerequisites for membership in the community of economists. The easy
part is to challenge the pretenders. The hard part is to say no when
government officials look to economists for an answer to a normative
question. Scientific authority never conveys moral authority. No
economist has a privileged insight into questions of right and wrong,
and none deserves a special say in fundamental decisions about how
society should operate. Economists who argue otherwise and exert undue
influence in public debates about right and wrong should be exposed for
what they are: frauds.
Economists like Deirdre McCloskey have pointed out that most
economists have a simplistic and almost cartoonish view of ethical
issues in economics. Economists talk about “positive” and “normative”
issues with little understanding of the difficult philosophical issues
involved in defining these terms. It sounds nice to say that economists
should stick to positive issues and stay out of normative issues. But
what does that even mean?
Romer is famous for advocating charter cities
(similar to Hong Kong), which are free of burdensome regulations
(consider the irony). I am pretty confident that if Romer were forced to
explain why economists advocating deregulation are engaged in
“normative economics” and economists advocating charter cities are
engaging in “positive economics”, he would have a difficult time drawing
a meaningful distinction. McCloskey would have a field day with this
essay.
Romer’s a great economist, but I think he got out of his area of
expertise in this essay. Of course you could say the same about my
rebuttal. But if even a non-expert like me sees obvious flaws, imagine
how an expert on deregulation or normative economics would react to
Romer’s essay."
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