Links 2024-01-14 - Wrongfully Planned Obsolescence

The popular narrative fails us

Often in analyzing or predicting, simplistic thinking fails us. It leads us to “obvious” conclusions that are misleading at best and outright completely wrong at worst.

Consider this example from Alex Tabarrok on how the market took the news that Eli Lilly’s weight-loss drug Zepbound requires a patient would need to stay on it for life to maintain the weight-loss benefits. The stock (LLY) fell sharply. As Tabarrok says, “Hmmm…that certainly violates what the man in the street thinks about pharmaceutical companies and profits.”

He presents that post as a puzzle and follows it up with this answer post to which he later added this post of additional comments. All are short and worth the lesson in why planned obsolescence is a theory that doesn’t even work in theory. Using the prototypical example Tabarrok writes:

Consider two lightbulbs, one lasts for 2 years the other lasts for 1 year. Which lightbulb is more profitable to sell? Any sensible analysis must begin with the following simple point: A lightbulb that lasts for 2 years is worth about twice as much as a lightbulb that lasts one year. Thus, assuming for the moment that costs of production are negligible, there is no secret profit to be had from selling two 1-year lightbulbs compared to selling one 2-year lightbulb. The firm that sells 1-year lightbulbs hasn’t hit on a secret profit-sauce because its customers must come back for more. If it did it could sell really profitable 1-month bulbs!

Sticking with drugs but shifting to the illicit market, Scott Sumner demonstrates how a simplistic view of drug-crime legalization/decriminalization/legalization of drugs leads to bad conclusions. Starting with the example of overdose deaths in California, he writes:

In 2014, California had only 9.6% of all drug overdose deaths in the US, despite having 12% of the US population.  (Are you surprised, given what you see reported in the media?)  In 2022, that figure actually fell slightly—to 9.5%.  So there’s no evidence that California’s drug crime liberalization had any impact on overdose deaths.

There is a lot to be desired in the various baby steps we’ve taken toward a drug-war-free world. But the results have been good to very good. Drug warriors are being as fantastical in this disingenuous analysis as they have always been with their faith in prohibition as a solution.