368 (8 May 2019)

Welcome to week 368!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription.

(30 April 2019):They Want It to Be Secret: How a Common Blood Test Can Cost $11 or Almost $1,000The New York Times

——– It’s one of the most common tests in medicine, and it is performed millions of times a year around the country.  Should a metabolic blood panel test cost $11 or $952?  Both of these are real, negotiated prices, paid by health insurance companies to laboratories in Jackson, Miss., and El Paso in 2016.”  But, if “you’re a patient seeking a metabolic blood panel, good luck finding out what it will cost.”  In Tampa, Florida, alone, “the most expensive blood test costs 40 times as much as the least expensive one. . . . Outside of health care, a swing of prices as huge as the one for blood tests in Tampa is unheard of.”  Jeanne Pinder, who runs “the consumer-oriented website Clear Health Costs, notes: “When you get into M.R.I.s, ultrasounds an blood tests, they [the prices differences] are crazy . . . The secrecy in pricing all over this marketplace encourages this behavior”

********The article makes abundantly clear the importance of knowledge (and ignorance) in the health-care pricing.  A big part of this is that involves the negotiations that take place between health insurance companies and hospitals.  For example, “In markets where there is a dominant hospital chain, or a powerful hospital that many patients insist on using, insurers tend to face high prices, with less leverage to bargain the hospitals down.”

********Secrecy and intellectual property are also important in professional sports, for example, Major League Baseball.  The article [SR] “A Brain Drain for the Astros” The Wall Street Journal draws attention to the increasingly data-oriented nature of baseball.  Contributing to the success of the Houston Astros were “some radical hires . . . people like Sig Mejdal, who worked previously at Lockheed Martin and NASA, and Mike Fast, a longtime semiconductor engineer.  They helped transform the Astros into a powerhouse, with three playoff appearances in the last four years and a World Series championship in 2017.”  But the success of the Astros has led to hires of crucial personal by other teams: “The rest of the league this winter treated the Astros like their own personal Walmart on Black Friday, storming the aisles in search of anything they could pull off the shelves.”  To help protect the intellectual property that the Astros have built up, the team now “tries to limit how many people in the organization know the full scope of the club’s inner workings.  The Astros put less in writing than they once did and will, when appropriate, divide information among different people.”  A very interesting strategy.  In 1945 Fredrich Hayek wrote in “The Use of Knowledge in Society” about the importance of markets for unifying dispersed information.  Now an organization is taking steps to distribute unified information.  No doubt this is a common practice among organizations that have substantial intellectual property.

(1 May 2019):A Rare Prize for an Economist Looking at the Big PictureBloomberg.com

——–The 2019 John Bates Clark medal, “arguably the most exclusive award in the field of economics,” was given to Emi Nakamura of the University of California-Berkeley.  She is “an undisputed star in the field of macroeconomics.”  Nakamura “is one of the leaders in the field of New Keynesian economics.  This school of thought, which has become the dominant paradigm at central banks around the world, holds that recessions happen because companies are unable to adjust their prices in response to events like a financial crisis or a big rise in interest rates.  Without the ability to adjust prices, the theory goes, companies cut their output and lay off workers instead.” 

********The article goes on to note that, although Nakamura is a “leading light” of New Keynesian economics, she “has spent much of her career challenging the idea”  What a refreshing thing to read.  The Clark Medal is awarded by the American Economic Association.  You can read its Prize announcement, which is substantially longer, here.

(2 May 2019):California janitors may get labor law protections in wake of federal court decisionThe Los Angeles Times

——–“In a decision opening yet another front in the battle over how to classify workers, a federal appeals court Thursday ruled that an international franchiser could be forced to treat its California janitors as employees rather than independent contractors.  The U.S 9th Circuit Court of Appeals ruled that the California Supreme Court’s landmark 2018 Dynamex decision, which makes it harder for businesses to classify their workers as independent contractors, applies retroactively to a class-action case again cleaning giant Jan-Pro.”  According to U.S District Jude Frederic Block, Georgia-based Jan-Pro uses “a sophisticated ‘three-tier’ franchising model” in which “ordinary janitors . . . are classified as ‘unit franchisees,’ independent contractors who are not subject to labor laws requiring minimum wages, overtime, disability insurance or other labor law protections.”

********The decision is viewed as have implications for businesses operating in the gig economy.  In the present case, although probably oversimplified, “franchisees” paid Jan-Pro a “franchise fee” to “clean for the company.”

********An article of related interest, largely because it relates to workers on the low end of the wage spectrum, is [SR]For Lower-Paid Workers, the Robot Overlords Have ArrivedThe Wall Street Journal.  The article, written by columnist Greg Ip, notes: “It’s time to stop worrying that robots will take our jobs—and start worrying that they will decide who gets jobs.  Millions of low-paid workers’ lives are increasingly governed by software and algorithms.  This was starkly illustrated by a report last week that Amazon.com tracks the productivity of its employees and regularly fires those who underperform, with little human intervention.”  The report mentioned appears in The Verge.  Such practices, according to Ip, bring to mind those engaged in by Jack Welch at General Electric, better knowns as “rank and yank.”  Nick Bloom, an economist at Stanford University, says that “In banking and management consulting it is standard to exit about 20% of employees a year, even in good times.”

(2 May 2019):Electric Cars and Solar Compete for the Same PartsBloomberg.com

********And what parts are they competing for?  Electric transistors—as “EV production has boomed, solar-component companies are being forced to wait nearly a year for the parts.”  Contributing to the problem has been the reluctance of “makers of components . . . to add capacity . . . But with companies placing orders 18 to 24 months in advance, transistor makers are now ramping up output.”

(3 May 2019):Antibiotics Aren’t Profitable Enough for Big Pharma to Make MoreBloomberg Businessweek

——–“Achaogen Inc. spent 15 years racing to develop antibiotics against resistant superbugs.  It targeted one of the most-feared superbugs lurking in intensive care units: carbapenem-resistant Enterobacteriaceae, or CRE, a strain that can kill up to half the people it attaches.  Last June its first drug, Zemdri, which kills CRE bacteria in the test tube, was approved by U.S. regulators.  From a public health perspective, Achaogen is a success.  But as a business, it’s a failure.  Zemdri’s sales in its first six months on the market were less than $1 million.  Achaogen filed for bankruptcy in April.”  As it turns out, “Big drug companies have been exiting antibiotic research for years, prompting the U.S. government and medical charities to step in with research funding.  Now health experts are realizing that research funding doesn’t matter if there’s no market for the drugs when they get approved.”  A part of this overall picture is that “infectious disease doctors, wary of promoting resistance, are reluctant to use new antibiotics until they’re absolutely needed.”  The tendency is to hold the antibiotic “in reserve,” which “doesn’t make for a good business plan” for drug developers.

********Summing all this up, the CEO of Achaogen, Blake Wise, notes: “It’s really frustrating . . . We developed a really important medicine and went through all the things we needed to do to develop a drug, but the market dynamics are such we can’t successfully run the commercial part of the equation.” 

(4 May 2019): [SR]In News Industry, a Stark Divide Between Haves and Have-NotsThe Wall Street Journal

——–“After suffering a historic meltdown a decade ago in the financial crisis, American newspapers began racing to transform into digital businesses, hoping that strategy would save them from the accelerating decline of print.  The results are in: A stark divide has emerged between a handful of national players that have managed to stabilize their businesses and local outlets for which time is running out, according to a Wall Street Journal analysis of circulation, advertising, financial and employment data.  Local papers have suffered sharper declines in circulation than national outlets and greater incursions into their online advertising businesses from tech giants such as Alphabet Inc.’s Google and Facebook Inc.  The data also shows that they are having a much more difficult time converting readers into paying digital customers.”  All this has contributed to “a parade of newspaper closures and large-scale layoffs.  Nearly 1,800 newspapers closed between 2004 and 2018, leaving 200 counties with no newspaper and roughly half the counties in the country with only one, according to a University of North Carolina study.”

********The North Carolina study alluded to, but not named, appears to be “The Expanding News Desert,” by Penelope Muse Abernathy.  You can download the report and explore interactive maps here.  There is a map for the U.S. as a whole, as well as for every state.  The WSJ article makes note of the problems that the decline of local newspapers presents, in particular for democracy.  As the slogan of The Washington Post says: “Democracy Dies in Darkness.”

(6 May 2019):American Students Have Changed Their MajorsBloomberg.com

********This article compares the top college majors in 1970-71 and 2016-17.  In brief, likely too brief, “Health professions are in, education and the humanities are out.”  What I found especially insightful about the article was its discussion of the changes brought about by “women entering college in large numbers” and then “busting out of the narrow range of majors such as education and English to which they had initially been confined.”  This is a good example of the invisible handshake—social and historical forces—at work.

********This is a good place to mention a locally-generated article by John Boyle of The Asheville Citizen Times: “Good-paying blue collar jobs go unfilled in tight labor market.”  Do the same factors that affect college major choice also affect the decision to go to college or enter a trade?  Something worthy of study.

May you have a good week!

Bruce

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