Information has great value in producing goods and services. Unfortunately, it is seldom free of cost. Moreover, there often is an inverse relationship where the more vital the information, the less likely it is to be free.
Much of the information we rely on has characteristics of a “public good,” in that it is both “non-rival” and “non-excludable.” My benefiting from a tornado siren does not reduce anyone else’s ability to do so also. And if you operate a siren, you cannot stop anyone from hearing it.
But because it costs money for radars, computers, equipment and electricity to create a tornado warning system that cannot be charged for, government has to play a role.
These are all background insights to keep in mind when reading two valuable recent reports, both of which were in the news.
The first, “Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies,” comes from the Federal Trade Commission, an agency tasked with stopping corrupt business practices that harm the public. It is specific and immediate, outlining routine methods used by PBMs to raise drug prices and profits and eliminate competition. Obscuring cost information from drug manufacturers, it’s alleged, gives PBMs even greater power over drug prices. A call for immediate action, it is a 71-page document easily found online and downloadable.
The second, “The Nation’s Data at Risk Meeting America’s Information Needs for the 21st Century” is from the American Statistical Association, a scholarly organization representing statisticians from academia, private industry, NGOs and government. It is less specific and longer in scope than the FTCs call to arms. Also, it deals directly with information — specifically data gathered and disseminated by government — as a commodity in itself.
It argues that the value of statistics, including those dealing with health, crime, agriculture, industry, commerce, finance, education and others, is underestimated by households or businesses, as well as by elected officials. Hence we face a danger of underfunding the continued compilation of data series that are vital to our health, safety and prosperity.
Witness how Wall Street reacts to government inflation and jobs reports, or how lawmakers react to Census data for apportionment and appropriations, or how politicians react when asked to redraw district boundaries. Indeed much is at stake. If the information is corrupted by political forces, or simply incomplete, it can’t be trusted. And whole institutions could falter.
The full 93-page ASA report is also easily downloadable as are 13-page executive summary and five-page “Highlights.”
What do these reports tell us? How is pharmaceutical distribution related to crime, health and population tabulations?
The answer is that both center on how information is used and created and on the costs of not doing so. To understand, go back to an early case of government creating value by turning raw data into actionable information available to all that boosted useful output to the benefit of society as a whole.
Matthew Fontaine Maury, scion of a Huguenot-origin Virginia family whose grandfather tutored Thomas Jefferson, was a U.S. Navy officer in the 1820s. After a disabling 1839 leg injury, Maury was put in charge of the thousands of Navy and merchant ships’ logs and charts. These contained millions of items of data that had produced no useful information. Working hard, Maury published a “Wind and Current Chart of the North Atlantic” in 1847 and then “Sailing Directions and Physical Geography of the Seas and Its Meteorology.”
These established him as a parent of modern oceanography, but more importantly were quickly adopted by merchant ship captains, reducing sailing times to distant ports. Shipping costs fell because sailors had usable information that never would have been compiled without government. Optimal sailing information for the Gulf Stream helped speed North Atlantic crossings by “packet boats” carrying mail and high value items. This facilitated the innovation of “liners.” These ships, for the first time, left in both directions on published schedules carrying passengers at freight at published rates. And this was with sailing ships, before trans-oceanic steamers.
Maury’s findings were a public good. Once published, there was no way to keep British, French or other ship captains from using them. So he organized nations to cooperate in pooling new data to be incorporated in future publications.
It is impossible to put an exact monetary value on increases in GDP due to Maury’s work, but there are few individuals who made such an enormous contribution to global prosperity. It is a classic example of how acts by government created value that never would have been created by private market forces alone.
So what does this history lesson have to do with tabulating corn acres in Miner County, S.D., juvenile arrests in Lubbock Texas, high and low temperatures in Tower, Minn., or cases of conjunctivitis in Baton Rouge, La., preschoolers?
That is precisely what the ASA together with George Mason University explains in their report. They lay out why we need information we have long tabulated. It has long been of monetary and social benefit, but that we may cease to compile because we are not willing to pay to do so. We will be poorer, less healthy and less safe if we ignore their warning.
What then about managing drug prescriptions?
Well, Maury’s reports illustrated how government actions generated the compilation of information to benefit the public globally. The FTC report explains how our government, in its haphazard, jury-rigged modifications of the U.S. health system, inadvertently created private businesses that obscure rather than clarify and share valuable information. By making information about drugs and their prices less accessible, they potentially allow both patients and providers to pay more for pharmaceuticals than need be, or at least that’s what the FTC is getting at.
This hits households who might pay substantially lower amounts in a less-corrupted health system. It also harms taxpayers who must pony up in the large fraction of U.S. health care paid through Medicare, Medicaid, the Veterans Administration, the Indian Health Service and other agencies. (The PBMs, for their part, counter that their economies of scale actually lower the costs of pharmaceuticals, saving patients money).
The FTC is not alone in their warning. Private-sector economists, however belatedly, are examining the harm to the public from the monopolistic powers we have created for private businesses within our nominally “private” health system. We will see universities and NGOs produce further reports on how the structure of our health system fosters not only the transfer of wealth to private businesses, but also wastes of resources to no one’s benefit, what economists call “deadweight losses.”
Some caution is necessary. The ASA is correct that we need to continue compiling much of the data we long have, and it only talks about the potential for compromise; the veracity of current government data reports is not questioned.
But we do need a hard scrub of necessity. We produce data series about agriculture at frequencies and levels of resolution not equaled in any other sector. This may have made sense 80 years ago when a third of the population still lived on farms. Now, some of this could be telescoped. Contrasting this, there are newer important sectors including the internet, smartphone-based commerce and artificial intelligence, that as yet we measure only haphazardly.
Some adjustments have been made. The “Personal Consumption Expenditure price index,” a component of quarterly GDP output tabulations, uses massive “scanner data” sets from retailers. The older Consumer Price Index still, at least partially, derives from surveys once compiled by platoons of humans bearing clipboards who patrolled supermarket aisles reading labels on cans of tuna. So read the ASA report not only as a call to maintain the past, but to innovate for the future.
Even with the common theme of facilitating or disrupting the flow of valuable information, the two reports are distinct. Both are worth paying attention to. Both merit emails to members of Congress calling for action.
St. Paul economist and writer Edward Lotterman can be reached at [email protected].
