The Economist - UK (2021-11-20)

The Economist November 20th 2021 UnitedStates 47

and  Reinvestment  Act  (arra).  Will  voters
be madly grateful?
Probably not. “Economic populism,” as
Democratic  Party  staffers  and  strategists
call  the  tactic,  may  be  more  white  whale
than silver bullet. Our analysis of US House
election  results  in  2008  and  2012  reveals
that the party did not do any better in coun­
ties  that  saw  higher  per­person  arra
funds than in those that saw less. 
We  looked  at  the  change  in  the  Demo­
crats’  share  of  votes  cast  in  competitive
House  races,  weighing  arrafunding  per
person  in  each  county  against  the  Demo­
crats’  share  of  the  vote  in  that  county  in
2008,  the  percentage  of  white,  non­col­
lege­educated voters living there, the num­
ber  of  people  per  square  mile,  the  unem­
ployment rate in 2008 and a few other fac­
tors. After adjusting for these, arrafund­
ing  had  no  effect  on  the  party’s
performance. Our model found the Demo­
crats lost 7.7 percentage points of the vote
in the average county in the bottom 10% for
arrafunding, versus 7.9 points for coun­
ties in the top 10%. That difference was not
statistically significant.
The  findings  are  controversial.  Past
studies about the effects of the arrahave
found small positive effects for the Demo­
crats’  vote  share—with  an  interesting
twist. The leading study was done by Kath­
erine Levine Einstein, a Boston University
political  scientist,  in  conjunction  with
Kris­Stella  Trump,  now  a  political  science
professor  at  the  University  of  Memphis,
and  Vanessa  Williamson,  a  researcher  at
Brookings.  The Economist’s  model  was
nearly  identical  to  theirs,  but  they  found
that funding went with a higher Democrat­
ic vote­share if that county already had ve­
ry  high  levels  of  support  for  Democratic
House  candidates.  But  in  very  Republican
places, they found the Recovery and Rein­
vestment  Act  funds  actually  hurt  Demo­
crats by up to 5 percentage points.
The  difference  comes  down  to  which
counties and which variables are included
in  the  analysis.  Because  of  the  way  arra
funds  were  doled  out,  state  capitals  were
often  used  as  receptacles  for  money  that
would be distributed to counties later. This
created an artificially high reading of per­
person  arrafunds.  Then,  some  of  these
counties just so happened to move less to­
wards Republicans between 2008 and 2012,
perhaps because they were large cities that
tended  to  vote  Democratic.  This  in  turn
produced  an  inflated  estimate  of  the  pre­
cise  amount  by  which  stimulus  funds
helped Democrats. 
The academic model also did not adjust
for  population  density  in  counties;  or  the
share  of  white  voters  without  degrees
(both  of  which  were  linked  to  Republican
gains  during  Barack  Obama’s  first  term  in
office);  or  the  possibility  that  all  counties
represented  by  Democratic  legislators

wouldhaveseenmorebacklashbecause

DemocratsheldtheWhiteHouse.Inour

model, countiesthatelectedDemocratic

Housemembersin 2008 sawtheparty’s

vote­sharedropbyfivepointsmorethan

thosewithRepublicanmembers.Thatef­

fectwaslargerthanforthearra—nomat­

terwhatothervariableswecontrolledfor.

ProgressiveDemocratshavefordecades

believedthattheirpopularpolicypropos­

als and economic redistribution would

winthemmorevotersovertime.Butthe

biggestinfrastructurespendingplanofthe

past 50 yearsdidnotconferanysuchbene­

fitsonthem.Perhapsthistimewillbedif­

ferent.Butit seemsunlikely.n

Healthcare

Drug deals

M

ostdiabeticsneedatleastoneshot

of insulin a day to regulate their

blood­sugarlevels.Someneedfour,andin

America, drug companies charge about

$100a vial—nearlyseventimesmorethan

inanyotheroecdcountry.OlderAmeri­

cans,a thirdofwhomlivewithdiabetes,

could soonpayaslittleas$35 amonth

thankstoa billthattheDemocratsaretry­

ingtofast­trackthroughCongress,much

tothedismayofthepharmaceuticalindus­

try,whicharguesthatthecostcapswill

damageinnovation.

PrescriptiondrugsinAmericacosttwo

anda halftimesmoreonaveragethanin

otherdevelopedcountries.Atthemoment

thefederalgovernmentcannotnegotiate

withpharmafirmsoverthepricesofthe

drugstheysell,asothercountriesdo.In

Britain,forexample,thenhsnegotiates

discounted prices with pharmaceutical

companies, andonlyafteranotherpublic

bodyhasdeterminedifa drugisbeneficial

enoughto justify theprice.In America,

pharmaceuticalcompaniesare,ineffect,

thepricemakers.Ifpassed,thisbillwould

allowthegovernmenttohavesomesayin

drugpricesforthefirsttime.

OnbehalfofMedicarepatients(those

aged 65 orolderandthedisabled),thebill

couldempowerthehealthsecretarytone­

gotiatelowerpricesfortenofthecostliest

drugsby 2025 and 20 by 2028.Thisin­

cludestreatmentstypicallygiveninhospi­

tals,suchascancerdrugswhichcancost

payers$20,000a dose,andalsoprescrip­

tiondrugstakenathome.Theplanwould

alsoensurethatthesepatientsdon’tspend

morethan$2,000oftheirownmoneyon

medicineeachyear,adesirabledevelop­

mentsinceanestimated18mAmericans

can’taffordthedrugsthattheyneed.

This is, unsurprisingly, not popular

withthepharmaceuticalindustry. Many

newdrugsdevelopedtodayrelyonven­

ture­capitalinvestmentsinsmallbiotech

firmstocarryoutriskyresearch.Investors

areincentivisedbythepromiseofsubstan­

tialreturns,sinceAmerica’spharmaceuti­

calbehemothseventuallysellthesedrugs

athighprices.TheplanbeforeCongressal­

socurbspharmaceuticalsfromincreasing

someoftheirdrugpricesmorethanthe

rateofinflation eachyear.This sounds

goodforconsumers,butphrma, thein­

dustry’s lobbying group, maintains that

thisbillwillup­endAmerica’s“globallead­

ershipinbiomedicalinnovation”.Willit?

Althoughhighpricescansubsidisere­

search,thebillhasbeentweakedtoreduce

theimpactonnewdrugs.TheDemocrats’

previousproposalwouldhaveintroduced

pricenegotiationsandinflationcapsfor

250 drugs, for everyone. Had this been

madelaw,thenon­partisanCongressional

BudgetOfficeestimatedthateightfewer

drugswouldhavebeenbroughttomarket

overa decade(whichiseithera littleora

lot,depending onyourmedical progno­

sis).Butinthecurrentplan,onlytenofthe

costliestdrugswillbeaffectedatfirstby

inflationcaps.Whatismore,thesecaps

willapplyonlyafterthedrugshavebeen

onthemarketfora while:nineyearsfor

cheapersmall­moleculedrugsand 12 years

forthemorecomplexbiologics.

Pharmaceuticalsandtheirinvestorsof­

ten make their money back, and then

some,muchfasterthanthis.TakeGilead

Sciences,forexample,whichboughtthe

biotechPharmasset—andtheirHepatitisc

drug,Sovaldi—for$11.2bnin2011.Gilead

recoupedalmostallofthatin 2014 alone.

Inshort,thebillstrikesa balancethatmin­

imisesinnovationriskswhilestillgrant­

ingthegovernment somemuch­needed

negotiatingpower. Even therepresenta­

tivesmostcriticalofdrug­pricingreforms,

suchasSenatorKyrstenSinema,seemto

havecomearound.n

WilltheDemocrats’proposalsondrug

pricingdamageinnovation?

Insulin shock

Average price per standard unit of insulin, 2018, $

Source:“Comparing insulin prices in the United States

toothercountries”, Andrew Mulcahy et al.

*Excluding United States

Britain

OECD average*

France

Germany

Canada

Japan

United States

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