-Subtle shift in messaging from US democrats on what drug price controls might mean for innovation

-arguments by new nobel laurates, on a potential over emphasis on financial incentives vs “social capital”

This Statnews article (link end, Democrats’ new logic on drug pricing: Developing slightly fewer medicines is OK if it means lower prices) highlights the theoretical admission that a cap on incentives, or some form of drug pricing cap in the US, would lower the amount of innovation done.

Some politicians using a CBO report even put a number on it.

A saving of $345bn at the cost of 8 to 15 fewer drugs over a decade.

This is a very difficult question to answer, perhaps impossible. My sense is that the innovation cost is higher due to the positive spillover society gains from innovation. But, I also think there are other places in healthcare where there are better savings/efficiencies to be gained (preventative health, non-pharma-drug related interventions, social/education investments) – but that are politically even harder to manage. Still, it’s mostly the correct type of trade-off to think about.

This recent NYT article by  also raises some interesting points that financial incentives might be overplayed when thinking about policy. They argue:

“...economists have somehow managed to hide in plain sight an enormously consequential finding from their research: Financial incentives are nowhere near as powerful as they are usually assumed to be…” 

 They offer many case studies to support their view eg

“…We see it among the rich. No one seriously believes that salary caps lead top athletes to work less hard in the United States than they do in Europe, where there is no cap. Research shows that when top tax rates go up, tax evasion increases (and people try to move), but the rich don’t work less. The famous Reagan tax cuts did raise taxable income briefly, but only because people changed what they reported to tax authorities; once this was over, the effect disappeared.

We see it among the poor. Notwithstanding talk about “welfare queens,” 40 years of evidence shows that the poor do not stop working when welfare becomes more generous….”

“… The Alaska Permanent Fund, which, since 1982, has handed out a yearly dividend of about $5,000 per household, has had no adverse impact on employment….” (see picture)

They also claim it on CEOs, although here I’ve seen some evidence that financials have powered them.  They make the claim:

“…If it is not financial incentives, what else might people care about? The answer is something we know in our guts: status, dignity, social connections…”

This interests me as it argues for a larger weight on “social and relationship capital” than what we might have seen. They offer a policy idea (more education retraining credit, a Marshall plan for impacted regions where firms are subsidized to keep older workers – it would be interesting for an expert on Japan to comment on these ideas.

Statnews article: Democrats’ new logic on drug pricing: Developing slightly fewer medicines is OK if it means lower prices

NYT: Economic Incentives Don’t Always Do What We Want Them To