Posted by Marc Hodak on March 15, 2007 under Economics | 
Actually, he writes an article called “Statistics can mislead as easily as they can enlighten” published in CSM. It points out a useful distinction akin to the fallacy of division, hearkening back to one of my favorite books of all time, “How to Lie with Statistics.”
The French figure prominently in his examples, but the title is misleading. (Extra credit for anyone who can identify the title’s fallacy.)
Posted by Marc Hodak on under Futurama |
Actually, I’m just referring to the price of cancer drugs, as mentioned in today’s WSJ, which drugs unfortunately do not yet offer the prospect of immortality. The point of the article’s protagonist, Morgan Stanley biotech analyst Steven Harr, is that if the drug companies price their breakthroughs too high, they will face a political backlash that could undermine their long-term profitability. So, he says, they need to limit how much they earn from their breakthroughs by moderating their prices.
Setting aside the key assumption behind this claim, i.e., that the drug companies can forestall regulation by pre-emptively pricing below what the market can bear, I think this article presents a glimpse into what I believe will be the most important social debate of all time, the coming war over who will be allowed to afford immortality.
As I see it, it’s just a matter of time before the totality of human health problems becomes treatable. We will eventually, perhaps a long time from now, get to the point where even the poorest person will have access to these treatments. Between now and then, however, one thing needs to happen: the life-extending treatments need to be developed.
Their pace of development will be faster or slower depending on the rewards of development and overall economic growth. There will inevitably be a phase-in period, which could last several generations, where those treatments will not be universally available at market prices, so they will need to be rationed or heavily subsidized.
The key question, and this is where the mega-debate will happen, will be over the means of rationing or level of subsidization during this transition period. Market-based rationing without subsidization means that the treatments will go to the richest. It will also mean that those developing the treatments will have the maximum incentive to develop more, faster, and that the overall economy will grow more quickly, all of which hastens the day when the full set of treatments exist and are universally available.
In the meantime, will society accept the idea that Bill Gate’s kids or grandkids get to live forever but yours and mine may not? Of course, if we ration these treatments on any other basis, or tax everyone so that they are universally available more quickly, then the market will suffer. Either the drug company incentives or resources for further development won’t be there (which is the effect of the policy described in today’s article), or the economy as a whole will suffer from trying to afford the unaffordable–universal access to expensive innovations.
That’s going to be the big debate.
Posted by Marc Hodak on March 13, 2007 under Executive compensation |
The W$J gave front-page prominence to executive compensation, again. Today’s article highlighted five “players” and the groups they represent. Jesse Brill, “The Networker.” urged a tally sheet for directors. Lucian Bebchuk, “The Professor,” is known as the main academic proponent of the “managerial power” thesis of why pay has grown. “The Bureaucrat” is Meredith Miller, assistant treasurer of the state of Connecticut. “Mutual Fund Trustee” John Hill, from Putnam Funds represents institutional investors. Finally, “The Union Leader,” Edward Durkin, helps oversee the giant pension fund of the United Brotherhood of Carpenters and Joiners.
Other than having nicknames strongly reminiscent of a 70s heist flick, these “players” share an interest in what the authors call shareholder activism on executive compensation. But what interest, exactly, does each player have? What type of activism does each player promote? When you get into the article, it turns out that their interests and methods only partly overlap. The point of overlap, of course, is reducing the perceived abuses of CEO pay. But they define the scope and nature of thoses abuses differently, and pursue correspondingly different policies to rectify them.
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Posted by Marc Hodak on March 12, 2007 under Executive compensation |
For many governance critics, the level and growth of CEO pay suggests something is broken with the way boards oversee their companies. The idea that there is a problem, of course, attracts the idea that we need a political solution. Thus, a bill to allow shareholders a direct vote on executive compensation has been introduced by Barney Frank (D-MA). The proposal sounds sensible. The shareholders, after all, own the firm. In a perfect world, shareholders should decide exactly how their companies are run, including compensation policies.
In the real world, shareholder involvement in corporate operations, including human resource decisions, is simply infeasible. That’s why we have boards. Boards can study the issues in depth, consult with relevant experts, and bring their often-considerable operational experience and judgment to bear on key decisions affecting the value of the firm. Increased shareholder involvement would do little to address the underlying drivers of executive compensation. It would, however, create new agency costs of unpredictable magnitude regarding board oversight.
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Posted by Marc Hodak on March 10, 2007 under Movie reviews |
For those of you who have been concerned about the sissification of America promoted by our politically correct schools, this adrenaline-charged, ultra-violent movie should calm you.
I saw 300 with my two boys. Like all kids, mine have been inundated since pre-school with the virtues of sharing and niceness, or at least the appearance of such, and the vices of ownership and competition. It���s not overstating things to suggest that the liberated, educated mothers and teachers in the lives of these boys have sought to tame their innate, male thirst for conquest and transform it into a kind of sensitivity that holds a regard for other���s feelings higher than the desire to win. The hearty audience reaction to 300, even more than the popularity of the Lord of the Rings and Star Wars series, reveals the utter failure of this indoctrination.
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Posted by Marc Hodak on March 8, 2007 under Uncategorized |
I will periodically post to this blog for several reasons. The first is edutainment. I like getting in front of people for both educational and entertainment purposes. There is an inherent trade off between those goals, but, for me, when I’m doing my thing well, the two go together seamlessly. I think that economics, human nature, and the entertainment media (which I interpret broadly to include the big city dailies) are fascinating areas to be mined for insights. Second, I need the writing practice. I have to write for my business, and posting items forces me to condense my thoughts and communicate them, hopefully with impact. These posts are kind of a farm team of publication ideas. Third, the most important, is feedback. One day, when my posts and perhaps those of my colleagues attract a little following, we will have access to the kind of interaction you can’t get any other way short of continuously running seminars.
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