Sam Peltzman, a University of Chicago emeritus professor, could easily win this year’s Nobel Prize in Economics for his pioneering work on the economics of regulations. Peltzman’s odds of winning have probably improved because of his work nearly a half century ago on the impact of the FDA’s efficacy requirement for drug approval, which was imposed in 1962. Before that year, drugs only had to pass the FDA’s safety standards.
Peltzman found that the added approval standard substantially increased drug development costs, which caused a serious drop-off in new drugs developed and multiyear delays in the introduction of approved drugs. Peltzman and other economists following his lead have found that the added development costs caused hundreds of thousands of deaths from drugs never making it to market or being introduced after long delays. A Nobel for Peltzman is long overdue.
Peltzman’s impact can be heard today from a variety of sources, including the Trump Administration, calling for a speed-up in the FDA’s approval of Covid-19 vaccines. Delays in approval can only increase Covid cases and deaths. Peltzman’s findings remain applicable, critics insist.
The rigor of approval standards for sleeping pills (or beta-blockers and many other drugs) need not, and cannot, be the same as those for Covid vaccines, a point Peltzman would likely accept. Sleeping pills are largely for the users’ benefit—more sleep—with the effects on others nil or inconsequential. The death-reduction case for reducing such drugs’ development costs remains as strong as ever.
However, vaccines are different in one critical respect: Vaccines benefits those vaccinated and many others through the development of “herd immunity” (the point at which the spread of a disease is throttled by the prevalence of inoculation).
Herd immunity can reduce cases and deaths of those vaccinated as well as others not vaccinated. However, herd immunity depends on a substantial portion of the population (many epidemiologists say 60 or more percent, while one recent study from two European universities has found 43 percent is adequate) willingly getting vaccinated (with a working rule, the greater the spread in immunity, up to a point, the greater the decline in disease spread). This means that, barring forced vaccinations, herd immunity is not only dependent upon the science of testing, but also on people’s perception of the safety and efficacy of the testing processes.
Cutbacks in testing rigor (or just the amount of time devoted to testing) can have a two-pronged effect: They can reduce earlier than otherwise Covid deaths among early vaccinated people, but the cuts in rigor can also cause many people to resist vaccination (or even join the ranks of “anti-vaxxers”), delaying the development of herd immunity and extending spread of the disease, which, in turn, can cause more Covid deaths in the long run than are saved in the short run.
Ironically, the greater people’s resistance to vaccination, the more rigorous the testing may have to be just to assuage their safety and efficacy fears and induce them to get vaccinated, so that they contribute to the spread of herd immunity and add to derivative economic gains (more jobs and incomes).
By seeking to speed up the FDA approval process, Republican officials could have sewn doubts on the net value of vaccines and slowed the development of herd immunity. Similarly, many Democrats could have compounded the problem by suggesting that Trump has pressed the FDA to compromise its testing rigor for his reelection ends. Media hostility toward Trump, including emphasis on his efforts to press for vaccine development at “warp speed,” has probably compounded political pressures for vaccine resistance.
Peltzman’s line of argument suggests that greater resistance to vaccination can increase the needed payments to spread vaccinations and, again, to achieve herd immunity. The testing rigor for vaccines may also need to be greater than for sleeping pills because the last thing wanted during a pandemic is a vaccine-prescription requirement, which can slow the development of herd immunity by raising the costs of vaccinations.
The politics of vaccines could be having the unintended effect of elevating resistance to Covid vaccinations. In May, the Pew Research Center reported that 72 percent of polled Americans said that they would “definitely” or “probably” be vaccinated for Covid, while 27 percent said they would not. Earlier this month, the percentage of Americans willing to get vaccinated was down by almost a third, to 51 percent. Those unwilling to get vaccinated was up by more than two-thirds, to 49 percent.
These findings portend a new form of the well-known “tragedy of the commons,” a wider and longer spread of Covid and more unintended deaths, given that a check on vaccine politics will unlikely be driven by concern for the common good. Now, as reported by Wall Street Journal editors, officials from the CDC, FDA, NIH, and drug companies are having to work overtime to assure Americans that drug-testing protocols continue to be follow with the upmost rigor.
Richard McKenzie is an emeritus professor of economics in the Merage Business School at the University of California, Irvine. His latest book under development is The Human Brain on Economics.
READER COMMENTS
Mark Brophy
Oct 6 2020 at 8:55pm
As Elon Musk pointed out recently, the vaccines are more dangerous than the virus for him and his children and others younger than 70. The virus only hurts people older than 70 and they might not be able to tolerate the vaccine. Anders Tegnall of Sweden is smarter than doctors in other countries.
Mark Z
Oct 6 2020 at 10:38pm
Did he actually do the math to find this to be true? I think back of the envelope calculations suggest that a vaccine would have to be pretty close to 0% effective to have a net positive effect on probability of death or disability. Severe (especially fatal) reactions to vaccines are extremely rare, even in some of the more controversially dangerous vaccines in history.
Michael Pettengill
Oct 8 2020 at 11:46am
Anything less than 50% effective makes a flu vaccine hardly worth the risk, which is higher than flying, except when FAA deregulated, but much lower than driving with 3-point harness and collision avoidance.
But flu vaccines never prevent infection but shorten immune response, so 80-90% effective at preventing symptoms and infectious is fantastic.
Its the slowing of spread to the point of halting it for vulnerable people who take precautions which provides 90% of the benefit, even if only 50% effective.
For SARS-CoV2, even for non-vulerable people, getting Covid-19 is more dangerous than flying commercial on a non-MAX plane. For the entire population, its at least ten times more dangerous than traveling by road.
We travel because the risk is worth the benefit. But the risk today is at least one-fifth the risk half a century ago. Massive costs have been incurred to gain that benefit, plus the benefit of tens of millions of jobs, creating consumers buying lots more from businesses in all sectors. Highly beneficial.
The vaccines for SARS-CoV2 have been in development for 25 years, given a boost in 2004 (SARS) and in 2010-12 (post H1N1 and MERS), almost dying out in 2017 in the US, so the costs have been tens of thousands of jobs, and consumers with knowledge capital the benefit.
Why Elon fails to see the value when he sees bad environmental policy so high a risk the moving to Mars as a backup is required is baffling. But he does have as many kids as a century ago when kids were taken by virus all the time.
Mark Z
Oct 6 2020 at 10:41pm
The vaccine itself could have a Peltzman effect like seatbelts did: once people start to take it, they may behave more riskily, increasing transmission rates. That will also make it harder to assess the effectiveness of the vaccine observationally.
eric
Oct 7 2020 at 12:35am
Someone’s never been blitzed out on Ambien and gone over to his girlfriend’s house at 1am. Sleeping pills have tons of problems from addiction to drunk driving to all kinds of stuff.
I didn’t get a hepatitis A and B vaccination to protect my grandma. I got it to protect me. People don’t use protection during sex to keep the next person safe. Freedom is natural and good in and of itself. It just so happens to produce wonderful side benefits.
If vaccines somehow made diseases slightly worse for everyone else would you support the free and open use of them in a voluntary setting? I would. Putting these questions into play in public discourse shuts down the best part of society. Are you going to give up sex to protect grandma? Are you willing to make other peoples children give up sex to protect someone else’s grandma, as long as we all understand that the moment Trump loses the motivation to enforce those laws will be gone?
Thomas Hutcheson
Oct 7 2020 at 8:30am
Requiring pharmaceutical firms to show the efficacy of drugs seems reasonable enough. The problem seems to be the cost benefit analysis methods FDA applies to how much information is suffuent for doctors to prescribe, for insurers to reimburse for, and jurors in tort suits to evaluate.
Anders
Oct 7 2020 at 1:29pm
I am fascinated when I read pieces advocating for abolishing the FDA and, for that matter, free banking. Interesting in theory – but add to that mixture the toxic elements of the US health care system or the fragility of a highly leveraged monetary system, especially since the quantity of US dollars in circulation has risen sixfold in just over a decade, and putting anything resembling such liberalism in practice seems like a foolhardy pipe dream. A beautiful unicorn – the only problem being that unicorns are fictional (paraphrasing someone, maybe Mike Munger).
Of course, if we do require FDA approval, safety comes first – efficiency second. But I sense a growing problem with this: that we are distorting and in part rendering ineffective the incentives that doctors face.
Take Oxycodone, the leading culprit of the opiate epidemic. It was launched on a grand scale with claims of being a less addictive, medium-strength opiate. Even to an amateur like me, anyone, especially anyone with a medical degree, should have known from the outset that there is no way long-term use of opiates would not lead to addiction.
So why did doctors then prescribe opiates so liberally? Because they reacted to incentives. On the one hand, they had patients who had developed the to us Europeans bizarre expectation of complete relief from any pain. On the other, they found shielding and justification in FDA approval and the spurious claim that oxy was less addictive. And of course, they faced few incentives to use their education, or just their common sense, to second guess this claim in practice.
Health care is, of course, inherently a market that cannot be as free and vibrant as the one that puts more computing power in our pockets than the whole world had half a century ago for as little as 50 USD. So some regulation and redistribution is necessary for both economic, social, and political reasons. But clearly, every well-intended measure, here more than in other markets, bring severe trade-offs – which in turn has to be fixed with even more measures. The result, in the US, is a bizarre animal: a system that purports to be private and fair, but that is at the same time one of the most overregulated sectors in the world. Suddenly, socialised financing of at least high-cost health care, such as that of Sweden, which has better health outcomes at less than half the cost, looks like the least worst option even to inveterate liberals….
Knut P. Heen
Oct 8 2020 at 11:26am
I am living in Norway with more or less the same health care system as in Sweden. The health care spending per capita is 70 000 NOK or $7 000. But, we do not get all the expensive drugs people get in the United States because these drugs are “too expensive” according to the bureaucrats. Obviously, it is cheaper not to buy stuff.
The question people should ask themselves is the following: Do I want to put my own health in the hands of a cheap bureaucrat who do not know me? Why on earth should I send my money (taxes) to Oslo such that a bureaucrat in Oslo can tell me what medicine to buy for my money. Not to speak of the waiting lines. I ordered a removal of a wisdom tooth in January. It will finally happen in December unless it is rescheduled. Finally, the redistribution argument is not true either because the King and the politicians do not go to the same hospital as I do. You can guess which hospital is better by far. In my hospital they even declared a living patient dead. It was the police who discovered that the patient was breathing. Unfortunately, that was too late to save the patient.
The price is not the only difference between a Ferrari and a Fiat.
Tom DeMeo
Oct 9 2020 at 11:25am
Vaccines are uniquely complicated, and this post does not do it justice.
The social costs of this virus are beyond description. The price of passing FDA approvals is not being borne by drug companies in the same way they normally are.
Given the circumstances, the costs and difficulty of passing FDA approval are largely irrelevant. Only compressing the time frame and getting it right matters. There are no cost/benefit calculations here worth considering. Getting it done correctly is the only consideration.
We have far more competition among candidates than under normal circumstances. This analysis doesn’t consider the math of choosing among numerous vaccine candidates.
A misjudgement of effectiveness could produce an effect where millions of people believe they are protected more than they really are, and that could kill a lot of people, and destroy public trust going forward
A misjudgement of side effects could destroy public trust, and no one would control the narrative, so no one knows how bad it might be.
We need to get this right, and we need it fast. That means the highest standards, and unlimited public resources to get it done. Fixing the FDA can happen on a different track.
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