Is medicine as flawed as finance?

Events that took place this past holiday season have set me to thinking not just about the awful nexus that takes place when illness, addictive drugs, and the American medical system meet, but also about the nature of observation-based (as opposed to controlled-study-based) science and the relationship between the practice of this science and the giant corporations that have an interest in this practice. In short, I’ve been thinking about how failures in the world of medicine look very similar to failures in the world of finance.

What happens in an environment where data is important, but its interpretation is necessarily imprecise, and there are corporations whose goal is to profit off of any structural weaknesses in the methods used to interpret the data? The combination of weak antitrust enforcement that has placed immense power in the hands of a very small number of corporations and a corporate focus on shareholder value rather than stakeholder value means that there simply aren’t that many influential corporations left whose core business strategy is to serve those who buy their products to the best of the corporation’s ability.

In finance this means that clients are often treated as “the mark”, and client losses are justified by those who generate them on the Darwinian principle that good things will happen when dumb or uneducated people lose money. Financiers know that the nature of the data ensures that they can almost always come up for some kind of an explanation for why the product they use to garner some “dumb money” is in some way beneficial and should not be banned. (e.g. “in an efficient market, only people who need product X will buy product X, so we don’t need to worry about the losses of the “dumb money,” which exists to make the market more efficient.”) The tools of the academics are used, not for the purpose for which they were invented, but to make the world a worse place to live in.

Unfortunately I’m beginning to suspect that our drug companies function on the same principles as the financial industry. It seems to me that doctors have been trained not to listen too closely to patient complaints about side effects. Now there are probably good reasons for this: if the doctor is conservative about prescribing medicine so that you really need the medicine when you get it, then the side effects will need to be quite severe in order for them to outweigh the need for the medication. And it is true that doctors almost certainly receive many complaints about perceived side effects that are in fact due to other causes. In short, doctors have a very hard job.

It seems to me that pharmaceutical have turned the challenge of medicine into a profit opportunity through two mechanisms. First, they work aggressively to get doctors to prescribe their medications for minor ailments that could be addressed through over-the-counter or non-pharmaceutical means. When the pharmaceutical companies are successful, doctors end up prescribing drugs that are net “bads” for their patients, and frequently choose to address side effects not by taking the patient off the medication, but by prescribing another medication to address the side effect. A patient with a minor complaint can end up on a cocktail of drugs that causes far more damage to the patient’s health than the minor complaint itself. Who has not heard a doctor state when the patient questions whether her growing health problems are not in fact being caused by the cocktail of medication that “It’s not cause and effect,” pooh-poohing the patient’s concerns? While there are certainly very good doctors out there (and I recommend that you seek them out), the medical profession has done far too little to offset the nefarious influence of drug company incentives.

Secondly, it appears that drug companies have learned that addictive drugs are some of the most profitable. In my view this is likely to be due to the fact that these drugs often have the side effect of causing the malady they are prescribed to cure. That is, once you have become addicted to the drug, trying to get of the med will often cause you to experience the illness that you took it to address — but even worse than before you took it. It’s not unusual for patients to get into a pattern where the doctor keeps prescribing higher and higher doses of these medications and that the patient ends up facing very strong disincentives to go off the medicine. A profit-maximizing pharmaceutical company will likely prefer to develop this type of medicine than a medicine that can treat the ailment, but that is non-addictive. That is, the profit motive is very much adverse to what is in patients’ best interests. When you add to this dynamic the tendency of many doctors to pooh-pooh patient concerns about side-effects and in particular concerns that the medication may be worsening the condition (“It’s not cause and effect. Your symptoms are probably just the progression of your ailment.”), it hardly surprising that the way these medications are being used is often toxic.

Overall, when I hear complaints about how too much of the public doesn’t believe in science anymore, I can’t help wondering: Well, what is their experience of how science is applied in the modern world?

A thought on global warming

I just read this piece over at Economist’s View and here’s my solution to the global coordination problem.

Set up an international carbon tax and direct the revenue to an overseeing organization.  (If cap and trade can generate revenue for government that could work too.)  The funds should then be dedicated to carbon mitigation and climate change adaptation — with the rules deliberately set so there is a generous annual transfer from developed to developing countries.  Finally, any country that turns out to be faking things like carbon offsets will have the funds that flow to government decreased so that international monitoring of offsets and similar policies can be funded

The basic idea that I think would be very useful is to take the revenue from a carbon tax — or cap and trade — and use that revenue to deal with the issue of aiding the transition for developing countries.

A meditation on justice

Lloyd Blankfein’s claim that he’s doing “God’s work” stimulated a post over at Naked Capitalism on calls for justice in the Bible.  Reading those quotes made me think about what we have gained and what we have lost by formalizing justice in legal, judicial and police institutions.

Those who live in countries without effective institutions can assure you that life with such institutions is generally better than life without them.  What is often termed economic immigration could very easily be redefined immigration to take advantage of a superior institutional environment — without misrepresenting the motivations of the immigrants.  (Belief in the effectiveness of certain institutional structures is one of the reasons that I think concerns over excessive immigration like this my be misguided.)

There is, however, something that is lost in an environment where third-party institutions are relied upon to provide justice.  Culturally many societies with a history of weak institutions have instead an ethic that says that it is the responsibility of those who witness petty injustice to intervene.  Because there is no third-party enforcement of justice that burden falls much more heavily on each individual.  Such cultures are rarely capable of standing up to abusive powerful individuals (although righteous revolutions are as old as history).  A culture of interventionism in small scale injustices does, however, lead to a healthy ability to discuss injustice and to discipline those with a tendency to misbehave, while at the same time treating them as members of the community.  Village cultures are far from perfect, but they can (in the absence of individuals with excessive power) generate a very healthy environment based on mutual respect — where individual failings are both acknowledged and controlled.

The quotes from the Bible on justice seem to me to refer to the village culture of intervention. With our centuries of reliance on institutions to administer justice, I think that over time the culture of intervention has been lost to Western society.  And I begin to wonder whether our judicial institutions can actually survive in a world where individuals no longer feel responsible for preventing injustice.  Maybe immigration is what we need to revitalize our institutions and make them strong enough to last for another century.

The problem with economics

This may be a little harsh, but, having just read this Colander interview, I figure I may as well put in my two cents — with the caveat that it may well reflect my own experience (at a tier 2 school) rather than the general state of affairs throughout the profession.

The problem with PhD programs in economics:

The professors think that they are smart.
They think that they know how to do research in economics.
They don’t know the difference between what they know and what they don’t know.

Newsflash:  If economics professors were smart, they would not have allowed the profession to devolve into the state it’s in today.

The economics profession is divided into fiefdoms each pursuing a profoundly flawed methodology and populated by economists who have declared allegiance to that methodology.  The rules of the game are this:  within any given fiefdom the fiefdom’s methodology is accepted as state of the art.  The methodology may be expanded and improved but there are always certain underlying assumptions that may not be challenged.  Appropriate reviewers for papers using the methodology in question come from within the fiefdom.  Economists from outside the fiefdom are not qualified to evaluate research using that methodology.

When talking to students, professors will critique — and ridicule — the methodologies of other fiefdoms, but public criticism is usually constrained in the interests of keeping the peace within the overall kingdom.  (There may even be some recognition that, since all the houses are made of glass, a true civil war in economics would leave very little standing.)

Every graduate student in economics is asked to choose a fiefdom and declare allegiance to that fiefdom’s methodology. Graduate students who are resistant to this state of affairs — that is, those who have their own ideas about how research should be done in economics — face huge obstacles to success.  This means that those with fresh ideas and a clear, critical view of the logical flaws of existing methodologies are generally not encouraged to teach their professors how to do research.  The profession, in its hubris, throws away its greatest assets.

What we are left with is an economics profession that is composed of a series of echo chambers designed to preserve the illusions of their inhabitants.  A profession that is almost completely hollow — and doesn’t know how to develop the tools necessary to understand the how and why of the economy.

Update: The one sentence version of this post.  Professor to grad student:  If you want to be a member of the club, you have to duplicate my errors.

Update:  I should note that economic historians are more open to mixed methodologies and original approaches than most of the other fiefdoms.  The error of the historians is that they have allowed themselves to be marginalized, instead of challenging the theorists on their own ground.

Update:  I should also note that I do have reason to believe that some schools actually do manage to facilitate communication across fiefdoms and that I received significant help from people who came from more constructive environments.

Neither of the last two comments changes the fact that graduate students are often “strongly encouraged” to work with deeply flawed research methodologies or that this process undermines the quality of economic research in the profession overall.

Update:  In economics the professors are not in command of their tools, they are subjugated by their tools.

For a little reduction in healthcare costs

A simple means of reducing unnecessary healthcare price inflation and administrative costs: Pass a law requiring every healthcare provider to sell services at the lowest contracted price to all comers.

This will throw a huge wrench in the current system and therefore will require at least a two year phase-in horizon.  It will also throw a whole bunch of specialists in healthcare contracting out of work — reducing administrative costs.  On the other hand, the current billing system is such a mess that doctor’s offices are always making billing errors, because they have a different contract with every insurer.  (I know because I take the time to fix these errors on principle.)

Note:  This post was inspired by Denninger.  When you cut through the profane histrionics he usually has a point.