Feb 8, 2016

Allocating Blame


“All things are full of weariness; a man cannot utter it; the eye is not satisfied with seeing, nor the ear filled with hearing. What has been is what will be, and what has been done is what will be done, and there is nothing new under the sun… In much wisdom there is much vexation, and he who increases knowledge increases sorrow. ” – Ecclesiastes 1:8

Last week Matt Levine at Bloomberg View delivered an insightful critique of how Congress is handling the public’s outrage over prescription drug pricing:

“The system for pricing prescription drugs in the U.S. is a bit of a disaster. Our reliance on medical insurance means that pricing is not based on consumer demand or ability to pay. Nor is it exactly based on negotiations with insurers: “Medicare, one of the biggest buyers of prescription drugs, is prohibited from negotiating drug prices with pharmaceutical companies.” The “expensive and time-consuming process of getting F.D.A. approval” to sell generic drugs deters competition and allows approved manufacturers to charge whatever prices they want. These are systemic problems, which were created by legislation and regulation, and which demand legislative solutions. So yesterday a House committee convened a hearing to consider these problems and try to come up with a comprehensive solution.

Of course I am kidding; they convened a hearing so they could ask Martin Shkreli about his Wu-Tang album and watch him smirk. He gave good smirk! Everything is fixed now. It turns out that those big drug-pricing problems weren’t systemic problems after all: The real problem was a smirky 32-year-old, and we solved it by yelling at him. Good work everyone.

To be fair, it’s not just Shkreli. Howard Schiller of Valeant Pharmaceuticals was at the hearing too (here’s his statement), as was a beleaguered Food and Drug Administration official. At one point this happened:

Howard Schiller gives names of individuals who made the decision to raise the price of Isuprel. He says he and CEO Michael Pearson were among the individuals who made the decision. Mr. Schiller says he can’t recall how the final decision to raise the prices were made. He says he’ll try to send along a list of individuals who made the decision to increase prices.

Can you imagine? Here is a problem that can actually be dealt with through government action, a problem of systems and rules that were set by Congress and that can be changed by Congress. And here Congresspeople were, talking about the problem. Except that they weren’t. They were yelling at a drug-company executive to give them the names of his employees so they can yell at them too. It’s pure theatrics, but it’s a theater of demonstrating that Congress doesn’t care about fixing the problem. There’s not even a pretense of wanting to help people; it’s just finding someone to yell at, and then yelling at them. At a hearing in a legislature! You’re legislators! Do your jobs! Come on.

There is a more general lesson here. Many bad things are caused by bad systems, not identifiably evil individuals. If you are in charge of the system, you should make it better. But finding an identifiably evil individual — you can identify him by his smirk! — and blaming him for everything is much more emotionally satisfying, and probably a better electoral strategy.”

Famed investor Howard Marks often refers to the necessity of using “Second-level thinking” to be a successful investor. Second-level thinking, for Marks, means being able to look deeper than the surface – to perceive the consequences of consequences. The issue of pharmaceutical pricing and Martin Shkreli provide an example of how the media serves the public what I would call First-level thinking in the form of anecdotes, often about individuals or small groups of people.

In my admittedly overly simplified model of the world, there are four levels of thinking about this and in some sense, almost any issue:

1st level thinking: People of dubious morality (like Martin Shrkeli) exploit a the system, often to make themselves rich and therefore, bad people are to blame.

2nd level thinking: The system for prescription drug pricing is broken and needs to be fixed by Congress and therefore, Congress is to blame.

3rd level thinking: We the people have elected an ineffective congress, the political system is broken; and therefore some (insert malevolent constituency) of people are to blame.

4th level thinking: We (everyone) create the political system and it is broken, and therefore we are all to blame.

The majority of people never get past First-level thinking, and the media doesn’t do much to help them get there. This is partly because there is a primal appeal to blaming individuals or small groups of people for what is wrong with the world. Blaming individuals or small groups serves our profound longing for simplicity; we yearn to live in a world where merely identifying the wrongdoers will fix what’s broken. Unfortunately the world is more complex, and the blame is often both more diffused and closer to home than we would care to admit.


Categories: Psychology, Theory

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