Topic: Regulatory Studies

Has Opioid Hysteria Risen to the Point Where Innovation Is Forbidden?

On November 2 the Food and Drug Administration announced the approval of Dsuvia, a sublingual tablet containing the powerful fentanyl analog, sufentanil. Sufentanil has been used for years in the hospital setting, primarily in intravenous form for anesthesia. It is roughly 5 to 10 times more potent than fentanyl, and thus has a significant overdose potential. The FDA reached this decision following a 10-3 vote in favor of the drug’s approval by the Anesthetic and Analgesia Drug Products Advisory Committee (AADPAC), based on data from multicenter trials. It was not approved for outpatient use, but for use only in medically supervised settings, and may be of particular benefit to military health care practitioners.

FDA Commissioner Gottlieb’s announcement stated:

Dsuvia, which was previously approved by the European Medicines Agency in July under the brand name Dzuveo, has some unique features in that the drug is delivered in a stable form that makes it ideally suited for certain special circumstances where patients may not be able to swallow oral medication, and where access to intravenous pain relief is not possible. This includes potential uses on the battlefield. For this reason, the Department of Defense (DoD) worked closely with the sponsor on the development of this new medicine. This opioid formulation, along with Dsuvia’s unique delivery device, was a priority medical product for the Pentagon because it fills a specific and important, but limited, unmet medical need in treating our nation’s soldiers on the battlefield. The involvement and needs of the DoD in treating soldiers on the battlefield were discussed by the advisory committee.

The announcement was met with criticism from numerous quarters, including Anesthesiology Professor Raeford Brown of the University of Kentucky, who chairs the AADPAC, Senator Edward Markey (D-MA), and the advocacy group Public Citizen. They questioned the need for the development of a new and potent opioid in the presence of the opioid overdose crisis, and raised concerns about the potential for the drug’s diversion to the black market for non-medical users. These objections were trumpeted by the media.

The concerns raised by critics are unfounded. According to the Drug Enforcement Administration, most fentanyl and fentanyl analogs found on the streets are in an illicit powdered form, made in labs overseas and smuggled into the US via the mail, Fedex, and UPS, or using Mexican drug cartel infrastructure. While much of it is mixed in with heroin or cocaine, many dealers own pill presses and press the powder into counterfeit oxycodone or hydrocodone pills that are sold to unsuspecting nonmedical users. That’s how the artist known as Prince died. He liked to use Vicodin (hydrocodone) recreationally. Records show he never obtained any prescriptions from doctors. His dealer sold him what was believed to be Vicodin but was actually counterfeit and made from fentanyl, which caused his overdose death.

Recrudescent opiophobia now evokes positions held at the zenith of President Nixon’s war on drugs. The fact remains that opioids can be highly effective in treating pain, especially in the acute setting. Hysteria-driven policy should not stifle innovations in this or other forms of pain management.

Commissioner Gottlieb also stated in the FDA announcement:

We owe an answer to patients with medical pain, and the innovators who take risks to develop products to help address their needs. We owe it to Americans who want the FDA to do our part to help end one of the biggest addiction crises of modern times, while we carefully balance these grave risks against patient needs.

Commissioner Gottlieb made the right call here.

Proposition 10: Rent Control in California

Proposition 10 on the California ballot would empower local governments around the Golden State to institute more and stricter rent control. Rent control laws infringe on landlords’ rights of property and contract; as critics point out, they also have a long history of making housing shortages worse, discouraging both the construction of new rental units and maintenance of the old while making it harder for newcomers to find a place to live. 

Though once favored in voter surveys, Proposition 10 has sagged lately, well behind in one poll and ahead in a second by only 41-38 with 21 percent undecided.  But advocates of liberty (and all who prize the lessons of Economics 101) shouldn’t get complacent.  Aside from the imponderables of turnout and momentum – first-time voters still lean toward the proposition, which has been endorsed by Bernie Sanders and the DSA – even a defeat for 10 could still leave the door open to future legislation in Sacramento working some of the same changes. Gubernatorial front-runner Gavin Newsom, for example, declares himself a supporter of rent control in principle and might preside over the passage using the conventional legislative process of what could get billed as a compromise measure with supposedly less radical provisions. 

It’s true that many California localities, the Bay Area especially, are experiencing skyrocketing housing costs. That has a lot to do with intense demand to live and work in places like Silicon Valley and San Francisco, and even more to do with the tight regulatory lid on new residential construction that artificially suppresses the supply of dwellings in the state generally and especially in desirable communities and near the coast. By shifting the blame for the resulting situation to owners of existing rental units, rent control would make it even less likely that Bay Area and coastal governments will take the one measure that would be effective against spiraling housing costs, namely legalizing much more new construction. 

As a classic instance of an infringement on economic liberty that often results in dire practical consequences over the long term, rent control has been a subject of interest to Cato from the institute’s earliest years and ever since then, in output ranging from multiple legal briefs, through a classroom treatment (at Libertarianism.org, by Howard Baetjer), to Ryan Bourne’s recent piece on Jeremy Corbyn’s plans to reimpose rent control in Britain.  Two papers from recent years:  

* “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco” (Research Briefs in Economic Policy no. 109, April), by Rebecca Diamond, Timothy McQuade, and Franklin Qian of Stanford University. To quote the summary in Cato Policy Report this summer, the authors “study the effects of a 1994 San Francisco ballot initiative that provided rent control for small multifamily housing built before 1980. They find that any benefits to tenants of rent-controlled properties were counterbalanced by landlords reducing the supply of housing in response to the law.”

* “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts” (Research Briefs in Economic Policy no. 9, 2014), by David H. Autor, Christopher J. Palmer, and Parag A. Pathak (“Our bottom line estimate is that the end of rent control added $2 billion to the value of the Cambridge residential housing stock over the ensuing decade following rent-control removal.”)

By the way, the chief group pushing Proposition 10 has been a Los Angeles-based nonprofit called the AIDS Healthcare Foundation. If you wonder what the rent control issue has to do with AIDS or healthcare, let that serve as a reminder to be extra-careful with your charitable giving, no matter how commendable or uncontroversial a group’s name or mission may sound.

Conservatives for Higher Taxes

Center for a Free Economy president Ryan Ellis writes in the Washington Examiner that President Trump “has caved to the socialists” by proposing to set the prices that Medicare pays for certain drugs at a percentage of the prices that foreign governments set for those drugs:

Unfortunately, rather than fighting the socialists, the president has decided to become one with them — at least when it comes to prescription drugs. After spending most of this year rightly condemning governments in Europe and elsewhere for ripping off Americans by imposing below-market price controls on drugs, Trump and [Secretary of Health and Human Services Alex] Azar basically surrendered to the price controls and announced we would be adopting them ourselves…

By letting the foreign price controls serve as a reference price control here, Trump has put us down the same path of scarcity and rationing all too often seen in the rest of the developed world.

The purpose of Trump’s proposal is indeed to reduce the prices Medicare pays for these drugs. Medicare currently pays much more for these drugs than government-run health systems in other nations.

Beyond that, Ellis’s oped crystallizes everything conservatives get wrong about drug pricing and Medicare purchasing in general. A few clarifications:

  1. No one knows what the “right” price is for any drug. We need market prices because they create incentives that naturally and always push prices in the right direction. 
  2. Medicare’s administered (read: ouiji-board) prices are indeed price controls, but not in the usual meaning of the term. They do not restrain prices anywhere but within the Medicare program.
  3. Medicare’s administered/controlled prices are not market prices, any more than other governments’ administered/controlled prices are market prices. 
  4. The Trump proposal would merely change the way Medicare comes up with the prices it pays for drugs. Those prices would not be any more “price-controlled” after the Trump proposal than they were before. They would just be lower–if the proposal achieves its stated goal, that is, which may or may not happen (more below).
  5. Conservatives who argue Medicare should not pay less than it currently does for drugs need to address the paradox inherent in their argument that, in order to restrain government and have a free economy, government must spend more. In order to fight socialism, taxes must be higher.
  6. One cannot import a price control. That’s not how they work. A government can either impose price controls on its own populace, or not. It cannot import the coercion another government exerts on its own citizens.

Ellis is correct when he writes, “Markets do a much better job reducing drug prices than government price controls do, and they do it while making prescription medicines widely available to patients, as opposed to rationed due to scarcity.” But the end result of these misunderstandings and misconceptions is that conservatives end up crowding out markets and/by opposing efforts to reduce government spending. This is why the Left believes, with justification, that when it comes to health care conservatives are just a bunch of cronyists.

Another irony: the more likely impact of Trump’s reference-pricing scheme is that prices in other nations would rise, which is exactly what Ellis says he wants.

Overcharged by Cato adjunct scholars Charlie Silver and David Hyman is the antidote to this strand of un-conservative conservative thinking. 

Markets Can Calm Opioid Epidemic If Government Gets out of the Way

Yesterday, WBUR in Boston reported on a simple technology that could reduce the number of opioid deaths: fentanyl test strips. The strips can be used by drug users to test for the presence of fentanyl in drugs they buy on the street. A Brown University study found that,

Sixty-two percent of young adult drug users who participated in the study in Rhode Island dipped the thin, pliable strips into the cooker where they heated the powder, or into their urine sometime after injecting. Half reported a positive result — a single dark pink line emerging on the strip — signaling fentanyl.

Most changed their routine as a result in at least one of these ways: 45 percent said they used a smaller amount of the drug; 42 percent slowed down their use; 39 percent used with someone else who could help if they ODed; and 36 percent did a test amount before injecting the full syringe.

While these routine changes aren’t as effective at preventing overdose as not taking the drugs at all, they do reduce the risk of a fentanyl overdose. So why aren’t more of these potentially lifesaving strips in the hands of those who could use them? As WBUR recounts,

But few drug users have access to fentanyl test strips. They are not FDA-approved, so are not for sale in drugstores or other outlets in the U.S. A handful of harm reduction groups fund distribution through private contributions. Other groups say they’d like to order the strips from the Canadian manufacturer but can’t afford the cost: about $1 per strip.

As federal and state officials are scrambling to come up with policy responses to the opioid epidemic it seems they are ignoring one easy measure: get out of the way and let the market provide low-cost harm reduction tools to those who can benefit from them.

Written with research assistance from David Kemp.

Airbnb and Neighborhood Conflict

This month the Washington, D.C. Council voted unanimously in favor of preliminary approval of a bill that has the potential to substantially restrict Airbnb and other short-term rentals in the District. The bill, which must pass a final vote before being officially approved, creates new licensing requirements and imposes new limits on who can rent out their spare rooms or homes and for how long. Most significantly, the legislation would only permit hosts to offer short-term rentals at their primary residence and to rent out their property for a maximum of 90 days a year while not present at their home.

The bill attempts to walk a fine line between fulfilling the promises of Airbnb and similar short-term rental companies and addressing the concerns of a coalition of community activists, hotel lobbyists, and hotel-worker unions. On the one hand, Airbnb—like Uber and some other “disruptors”—allows the middle-class to turn previously underutilized consumer durables and assets into sources of extra income. On the other hand, the groups calling for increased restrictions complain that Airbnb reduces the housing supply for long-term tenants and thus raises housing prices, has allowed commercial hotel operators to skirt regulations and taxes, and disrupts communities and neighborhoods with an influx of noisy strangers.

The benefits of Airbnb to some homeowners are clear, but the complaints of the bill’s proponents aren’t entirely baseless. Community activists argue that Airbnb exacerbates housing affordability issues. As I recounted in my working paper review in the winter 2017-2018 issue of Regulation, economists Kyle Barron, Edward Kung, and Davide Proserpio examined the impact of short-term rentals on housing prices and rent and found that, though the effect is not zero, it is small: a 1 percent increase in Airbnb listings causes a 0.018 percent increase in rents and a 0.026 percent increase in house prices.

Hotels contend that Airbnb, despite cultivating an image of middle-class owners earning extra income from renting out a spare bedroom, has allowed commercial operators to circumvent taxes and health and safety regulations. They back up this claim by citing that the vast majority of Airbnb revenue comes from entire home rentals and argue that regulations are needed to level the playing field. Browse through some of the postings on Airbnb and it is clear that these commercial operators aren’t fictitious (see this host, for example, whose description overtly describes themselves as a “full-service relocation management agency” and, with 79 available units in D.C., is the largest host in the city).

But a close look at the same hotel-lobby funded research used to justify the regulations shows that commercial operators are not as widespread as they portray: over 90 percent of entire home rentals in D.C. are offered by hosts with only one listing. That number also discounts middle-class D.C. residents who may rent out a starter home on Airbnb along with their new home, and thus technically offer two units for short-term rentals but can hardly be considered commercial operators.

Finally, some District residents complain about Airbnb and the strangers it brings into their neighborhoods and apartment buildings. These residents’ concerns about congestion, noise, and safety are probably overstated, but not unfounded. (In one egregious case, for example, one homeowner in the affluent Dupont Circle neighborhood of D.C. was renting his house out for large parties, including a concert with rapper Ja Rule.)

Antitrust Mythology and the Decline of Sears

Sears Roebuck & Co. became the most fabled retailer in American history as the pioneer of catalogue merchandising, an innovation that revolutionized small-town life. Its then-visionary management followed up with stand-alone stores that long served as landmarks in their communities, developing brands and business lines notable in their own right such as Craftsman, Kenmore, Discover Card, and Allstate Insurance, most of which are now independent. 

In the first half of the 20th century a whole generation of antitrust and competition laws attempted to restrain the rise of chain stores, with their perceived advantages in negotiating with suppliers. “One of the dumbest laws,” as Cato senior fellow Doug Bandow has called it, was the Robinson-Patman Act, amending the Clayton Antitrust Act in 1936, which (employing vague, opaque language) criminalized many arrangements in which chain stores like Sears obtained quantity discounts from manufacturers. Per one reference work, Robinson-Patman was meant to respond to “the growth of chain stores such as A&P and Sears, Roebuck,” in service of the interests of independent retailers and wholesalers. “The United States Wholesale Grocers Association drafted the original bill,” notes another source. 

None of which succeeded in holding back the logic of marketplace competition: under the Reagan administration’s leadership of the U.S. Department of Justice’s Antitrust Division, Robinson-Patman fell into disuse and the discount revolution gathered force. This morning, following a long decline, Sears filed for bankruptcy. (A&P, once demonized as a business juggernaut destined to swallow up grocery retailing, went out of business in 2015 after closing its remaining stores).  

In a column worth reading through, Joe Nocera at Bloomberg draws a lesson for policymakers about capitalism’s ferment of creative destruction. “The next time you hear somebody say that the dominance of Walmart or Amazon or Facebook can never end, think about Sears. It can — and it probably will.” 

Congress Can’t Create an Independent and Unaccountable New Branch of Government

The Founding Fathers crafted a system of government in which legislative, executive, and judicial authority were each entrusted to different entities. Their purpose in choosing this design was to prevent the consolidation of power in any one individual or group of individuals. The Framers anticipated—and attempted to guard against—a bureaucracy that could serve multiple governmental functions and remain unaccountable to the citizenry. In Federalist No. 47, James Madison recognized that when legislative, executive, and judicial power rest in one entity, individual liberty suffers. Likewise, Justice Anthony Kennedy declared in his concurrence in the 1998 case of Clinton v. New York, which struck down the presidential line-item veto, “Liberty is always at stake when one or more of the branches seek to transgress the separation of powers.” 

In passing the Dodd-Frank Wall Street Reform and Consumer Protection Act, however, Congress circumvented constitutional design and violated the separation of powers doctrine. Among its multifarious failings, Dodd-Frank created the Consumer Financial Protection Bureau (CFPB), controlled by a single director who has the unilateral power to enact, enforce, and adjudicate regulations. The director is not accountable to any internal structure, is exempt from congressional oversight, and cannot be removed by the president for policy reasons. Since its inception, the CFPB has issued 19 federal consumer protection rules, affecting everything from student loans to banking practices, all without checks, balances, or accountability to voters. Essentially, Congress assigned a vast amount of authority to a bureau that answers to no one.

When a challenge to Congress’s unconstitutional delegation went before the U.S. Court of Appeals for the D.C. Circuit, the court refused to consider the impact that the CFPB’s actions have on individual liberty. However, the Supreme Court, in Commodity Futures Trading Commission v. Schor (1986), reminded us that the separation of powers protects “primarily personal, rather than structural, interests.” In other words, substantive freedom, rather than simply procedural rights, is most at risk when checks and balances fail. And so the CFPB, going far beyond simply contravening checks and balances, regulates areas such as home finance and credit cards. These sectors are essential to individual economic activity, so the D.C. Circuit was wrong to hold that the CFPB’s infringements upon these liberties were irrelevant.

The State National Bank of Big Spring, based in west Texas, filed a petition asking the Supreme Court to review the D.C. Circuit’s erroneous decision. Cato has joined the Southeastern Legal Foundation and National Federation of Independent Business on a brief supporting this petition. We argue that the separation of powers, as our Founding Fathers correctly recognized, is a bulwark of our individual liberties. If we allow Congress to delegate authority in a blatantly unconstitutional fashion, our republican system of government will be eroded by powerful bureaucracies with unchecked authority.

The Supreme Court will decide whether to take up State National Bank of Big Spring v. Mnuchin later this fall.

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