« The Weeds

Net neutrality, explained (Also! Why CVS is buying Aetna)

2017-12-05

Matt, Ezra, and Sarah talk through the argument around net neutrality, the possible CVS-Aetna merger, and a white paper about who becomes an inventor in America. Ben Thompson's defense of Ajit Pai Who Becomes an Inventor in America? The Importance of Exposure to Innovation

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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
When people give to charity, that they usually want to give their money to good charities. But how can you actually maximize the amount of good you accomplished for each doll you give? Give well does in depth research to identify a shortlist of exceptional charities that do just that. Their top recommended charities are evidence back than they help the poorest people in the world. Visit W W W that give well dot org to make your charitable donation go further. when videos done they need a pivot. Back to audio in here. Hello. Looking for another episode of the weeds and the box media Potass network, I met replace yes that today we have pathway as recline Sir Clip regional. So are we aiming as back the other? It's amazing. If you enjoy us, you should probably go to the weeds Facebook group that suggest some questions for upcoming Kyoto,
Pursued ask weeds anything yet literally anything, not literally anything. We might that answer. We find an answer, but you can ask any like super races for product. Can answer ass? Ask anything, but we have a limited amount of time in a show, speaking of which We want to talk today about the network, neutrality, which is a hotly debated, but I think, wearily understood so here. We ve got a great show exam excited. We ve got a big mergers. Business seaweeds, we ve got unimportant Raj chatty paper on innovation. But yes, let's talk about, neutrality, which we want to talk about the chauffeur while so FCC chairman, as pie, has come out with a proposed rule that is going to basically were first the Obama administration rulings for net neutrality and and working to define all these terms and talk about what this is, but but but because the big picture, what is actually happen because what is actually happening is different than net neutrality itself, there too, can regulate internet service providers, one
and her I was called title one which right its aim is an information service and is a pretty light. Former regulation, so that was how'd, they regulated for some time under Obama and then a blue. was a wise ensued. The Obama administration saying that what out the Obama decision wanted to do in regulating them was not allowed under cover one. So then, and she they got moved under title to, which is a telecommunications service and under pedal to their considered. I you really right in the same way that electricity return utility? Are that you lots of things that are ready, did utilities, we think, are basically monopolies being as they are extremely expensive to lay down, so does not really a lot of room for competition. The ice p market us seems have a lot of that. Quality is very, very expensive to do that can allow smile service and most of us have wine and maybe two up choices of what you like, I can have Comcast and I can have basically nothing else, for instance where I live, so I'm sure that's where it was big up put under.
pedal to thirty nine it was he forgot about this moved on there. in their investments. It wasn't a big deal anymore, and then Donald Trump won. The election occupy was made FCC. Commissioner. He had written a book during descent, when this happened the first time and now he is come out and said he is gonna back, he's gonna move back under Twite pedal one. This is kicked off a huge is very ferocious debate. People are universal. Save the internet coalition are our friend over at the verge on one of vocs me as lesser but also good podcast, the birch cast I'll you guys may not now, but at the verge cause they ve been holding a simple one. Sided rivalry with the weeds had no idea got a terrifying burn right there. I am maybe never happening by that lie. Delay Patel over the verge as a great piece answer that the internet is fucked again which is a series of peace is running, but have the internet is fucked, but the
The idea is that if net neutrality is wiped out, we are going to have a situation where in and service providers who already not a popular set of folks can meter what you see. They can decide it. You know to run Netflix very slowly, but something else very fast. They can let net pay them to run very fast, but new entrants will come in very slowly and for a long time. It's me. And among techies, more less an article of faith, the net Charity is essential to the to the proper functioning of the internet. Internet, as we know it to exist for to continue to be a place where you have a lot of ferment alot of crime. disruption, log new players coming in and disrupting incumbents. You need that that that level informational playing field, so if I would actually be good to start with the case, people don't hear that much, which is, why might be FCC? not thank regulating ice peace under pedal to which it. become synonymous, but his road is a legal authority under which it can use and under which you can apply net neutrality. Regulations.
what one maybe not think that some important man I mean. I do It's important to emphasise that there are several different layers to this debate. Wait and so one important question that I I suspect we will not talk about a lot- is the administrative procedure act, unlike can azured pie actually just foot flop like this right. There is a big, and this is important right, like America, had this is like a country he we lies right The toy agencies have discretion, but it's not unlimited discretion, you're not supposed to have everything, just ping pong back and forth according to whose in office since it is an important question about that, but it's not the most
interesting aspect of this. Another important question is: is the title to regulatory classification just like a bad policy framework for thinking about? I espies, because under title to the FCC, has very wide ranging authority to do a lot of regulatory things. But, most importantly, I think the FCC could undertake to classification, are directly regulating broadband pricing ski sprite and could get very sort of fine grained the way in most states you have an electrical utility and then there's some kind of utility Service Commission and they tell the electrical utility pretty much exactly what they can do with their business. and that's that's not something that there has been much support for doing in practice, which Why? For a long time the Obama administration didn't move to the title to regulation.
you can see the sort of fears that exist around there. Then there's the actual, nothing regulatory classification, but the actual rule that was put in place, which was to say look. You have to try, all data as equal weight and sense of it means in practice things over for people to understand their cell phone service began. Cell phone data does not have net neutrality, rules applied to it and you're alive. to do different kinds of thing soap. So my plan from T Mobile, which is pretty standard these days, it gives me unlimited dad they say so. That's great unlimited at his great but there's two important cat One is that streaming. Video is an across at four eighty p qualities. That's a dvd equality rather than Blu ray quality. You know, so it's three
old and the other is, if I want to use my cell phone as a kind of cellular modem, to connect my computer to it, tether, anger or mobile hotspot. That, for me, is capped at three g speeds, rather than LP speeds, so all for carriers terms differ a little bit, but they all do those kinds of throttling for high definition, video and for mobile hotspots, because those are two really big data. Heavy use cases that most people I don't really care about right like this. The typical American is not watching feature length movies on their cell phone or trying to not have home internet service and just rely on their self onto other work. So they charge you extra for those kinds of features right in the case for allowing that basically, is by making it possible to squeeze
no unusual use case, customers for unusually large amounts of money you make mobile network operating more profitable than it otherwise might be, and you encourage companies to build out their infrastructure to get. You know more customers, so T Mobile, for example, used have a very limited LP network, but because being a cellphone operator is a profitable business, their building more and more so there's more competition, and the theory is that the typical consumer benefits from this right. That, like I, get unlimited data plan, I suffer through a couple of these camps, but it's not a big deal to me We have a lot of investment in the sector and, like gets all really good. I ask a question on this, so I think the thing that makes a lot of people about the idea of net neutrality is favouring lake like one besides, you know saying Netflix- has to pay more. Someone has to pay more you're talking about US nation, where, like any one you video. Anyone who wants to use it against like how does this this act with a lot of those concerned
I'm talking about them, I mean T Mobile now has its like Netflix free plans. Now they are picking like one that they like bright, but they partisan sacked swollen all those concerned so afraid. So I mean there was a prior iteration of the mobile phone market in which the companies had the opposite policies whose atta was capped. But then some services were exempt from the cap so like the popular streaming, music services would be exempt. Some still have spouse and settled zero rating, what their team, all those free, Netflix knitted. Oh, they actually give you a freezer ascription to Netflix rising oil, which, as everyone knows you they ve, been changing. Visit. There's been a lot of change at the moment, but but in the end, this your rating era, people had a lotta concerns right, because zero rating in the short term for for music streaming services is a really good for consumers and all the spot. If I want and that worry about it, but the problem with that was, if you have special deals with
I defy audio pandora handful of other services, then, Could you ever start up a new streaming music service when you don't already, have the deal in place, but but I think too, to make the case against net neutrality you'd one look it not at how mobile phones developed over time right when those zero rating deals? First came up. There was a lot of alarm from activists circles like there was a virgin article. I think that crazy glare route- and it was like the very first and with tee mobiles music freedom plan? And he this sounds great, but actually it's terrible right, because This non neutral service that he thought was can meet the bleeding edge of like the destruction of the hall internet. But what actually happened was that you had competition among the different mobile phone provider and it evolved not in the alarming way. He was saying, but in this much more benign way where it's like we,
to unlimited data for almost everything except streaming video. So the optimists case on all of this, I would say, is that if you unshackled wire fine- I s- p- is- and you allow mobilise p- is to continue to be unshackled. You are going to see more profitability in the sector and therefore more investment and more build out and more people are gonna, get faster options. More people are gonna, be in the favoured quarter, where you have two or three different wireline services and you're gonna get ultimately a healthier marketplace. The sort of I think this suppressed disagree. here is that the people who want strong net neutrality rules want to say we should just accept that there will never be competition in this sector and therefore we should break you late, like it's an awfully where is the people who don't want to see net neutrality want to say no, it's it's not true.
This is a literal monopoly industry for what we want to do is deregulated to encourage more investment radiating. That's actually like that crux of veto, as I've been reading about the thing is like how how do you expect this mark to evolve and that actually dictates a lot of behaviors you might see coming out of it. Because if you really are going to have a monopoly like, It is true you know I'll have somewhere where I can get one entered provider and, like whatever services. They want to offer me like that's kind of what mad, if you're going to be in a scenario, though, where there might be more competition, I think you'd be a little bit less worried about. I guess the thing I could not put together from the good of the people who, I am concerned about the move back to title. Wine is kind of like the steps between getting from here. To their like what is going to happen? That is going to end heard, some one to get into the ice p game give in demand,
of investment to take two to compete with. Who is there now I mean, maybe you guys are they gonna hurt income tax? You guys it's bizarre. That spell that more clearly, but that was the part I felt like was was really missing was how a lot people live right now in areas where they have one. Maybe too internet providers. I felt very like step one question mark profit or whatever. That means as that it fell egos unclear to me how you get from here. There are many means that one thing here is it within this debate you got a lot of people managing questions of hypothetical harms of hypothetical benefits. So I think, probably the best defence. I suppose decision is writ by Ben Thompson over its territory and and I dont curry with all of the, but we will put it in and ensure nuts and in his basic argument, is luck. Regulation imposes a cost and we don't even know what that cost is. So if you go
to impose our costs pretty honour on a sector as important as the internet sector. The digital sector, then have to be responding to a very clear harm and his arguing, Is it there's, not a very clear harm that is being responded to that there are a couple of, samples of I M p in some way or another throttling individual services in ways if it should worry us, but as he kind of Elsa history, those have been beaten back pretty quickly, pretty employee and he sees this as a low regulation era. The mostly worked the people Disagree with him why she's, pretty persuasive on this day, argue that a lot of that was a high regulation era. That, though those into your stories are low, but given that he put them I don't want to get super deepen the details, but I do want to get into a little bit of why there is a concern here. So, there's one version of looking at what the major internet service providers could do, which is really just about data management, and maybe it's about extraction of rights, so
Comcast says: Netflix takes up a huge amount of their system and all So Netflix has a lot of money and so Netflix you just pay a little bit more right. They they they they should to get the car. Very low latency, very high bandwidth, but they need to keep going. They they shut up there like kicking a little bit more to the pot in a way that other players don't have to do. That sounds okay on the other hand, the thing it's really important here is, if I s, peace are becoming vertically integrated content providers. Swede mentioned Comcast a couple times here, something we should say it. Comcast is. It is a big minority investor inbox media, it also when's NBC Universal, it also a big investor in Buzzfeed. So one thing: I'm cuss might want to do is give as feed and box and the NBC Universal Package a little bit of a boost on Comcast services back. You know because up and more valuable or or mixer investments were available or whatever it might be, and this is not just hypothermia.
There's a lot of this kind of thing happening. Verizon owns Yahoo and a well and spun them into a company called. Oh, they also own a video pot from called go. Ninety amend we you see weird things happening here, so eighteen keel on point exempted dry. Tv from certain from certain things I care remember, which one of them did Yes, but one of them for a period of time was making it very hard to use face too but you could very easily use Skype putting those Verizon I'm just not sure which one I want to say. I was there, they didn t, but whose somebody did this. It's not happening any more, but the thing is that these Players have a lot of investments throughout the throughout the market and they're trying to compete very directly with establishing, That's so thank you can imagine a couple different sets of problems here. One of these play, begin in ways either that are clear or not that clear trying to favour therein. Sociedad platforms over these kinds of internet upstart that cast or eighty d or whoever it is. There
oh, not just the pipes, but they want to own more of the content, and so that means pulling back on Netflix and ample up Hulu it means making it really easy to watch NBC, but not that easy to watch whatever it might be. Cnn. Ok, that's one thing another is that it becomes a kind of in incumbent protection package. So Google and Netflix, and some other big players, Facebook, Hulu, Amazon, Prime. They can open a lot of money to get preferential. I speak treatment, but your little mom and pop start up that is may be doing something that requires a lot of banned with, cannot and so just in a toy, the natural way people end up gravitate towards the services at work better and not the services it don't. Work is well now, one single, sometimes your net neutrality opponents say is that Netflix and spoke and go on. All these things have invested so much money into their data architecture and where those things are located that they already operating off of a kind of latency advantage over the other players and so just being able to straightforwardly. Buyer,
way into that market might be a good thing. I don't find that persuasive cause Netflix could both buying the market and use their other latency advantages, but your mileage on that may vary so those are the two concerns relay that won the caught the ice peace are going to try to use their power to give their content packages a boost and two that it will become a sort of incumbency protection programme that will make it harder for new entrants to come in and over. hurricane and sort of keep the internet moving on the other there's this idea, because we don't know what kind of regulations there will be, we don't know what kind of innovation there might be in the absence of those regulations, we don't know what would be invented if you could, just by super latency package's. So then you could have business, it may be required broadband with hogging that you're not gonna get otherwise that the internet is category That's ok, there's regulation. The eighty people debate how much has really been, but been regulation, but maybe we should be a pretty be an approach
light touch space, but try to just respond if there's a harm on it. that said, I want her mad on this, but first I want us to take. A break Folks who, with a message from one of our very smart sponsors as the economist magazine so really great magazine, I've read it for for many years since long before there were such a thing is podcast or even ipods. Anything really. That has the word, in it. They know. You know. I really value their insights illustration. Paper world, so their offering all weeds fancy free copy of the magazine if you like the weeds, the economist can give you a chance to dig deeper into a lot of. What's going on in the world does not like heavily idiot logical force in the waistcoat magazine, to give you straight up. Facts are big range of vital topics from politics. It acknowledges science to the environment, yes, economics, business. I really liked them is a source for four world and in international news.
It's very global perspective that the vaccine takes. As you know, we only get the weeds and so many stories do yourself. A favor is W W W done economist accomplish weeds the simple three copy of the economist right now to get the low down on the forces that impact our wives and change While they don't waste a single word, they cut through the noise of you, stay entertained and well so here's what you need to know into the economist today visit W W W that economists dot com, slash weeds or you know just just Google economist, weeds sampling of free copy. There, you're gonna. so. This is where I think the like Annoying regulatory details make a big difference right, which is that A common sort of talking point of people who are relaxed about pies move is that I
These have been regulated under title one for most of the broadband era, and there was no big problem. That is true. What is also true is that for most of the title. One era there were net neutrality. Rules were applied under the FCC title, one authority, then there was a critical. Case, which said that title one didn't give them the authority to impose net neutrality rules. so. We had a very brief span of time in which there was tat One authority in. the modern judicial understanding of what TAT one authority means don't really know what would have happened had that brief period of time extended, because almost right away. There was a big political move to get the shift to title to write I S, P is which will really only talk about a handful of companies. Here, right I mean
Is this a lot of companies who are very, very, very small market shares in internet service providing up it will really talking about eighty Anti Comcast Verizon Charter. a small number of companies who hand literally just like have a phone call and talk about their political strategy and obviously doing that brief window of up. unity when they knew with the Obama administration was considering flipping the title to switch. They weren't gonna like a leap out and go do the most outrageous thing that might possibly have been cooked up. Then we shifted to title to not only lasted a little bit of time. So pie is talking about bringing us to a situation that we have never you ve had before, in which not only whether be light touch regulation on these carriers, but they will be guaranteed that the light touch will continue something I would feel a lot more comfortable with him doing.
is actually the so been Thomson puts forward. What what sounds, I think, like a wise compromise that, like the neutral internet, is good, but the title to regulation is inappropriate. I would almost rather see them do the opposite and which They say they are maintaining incredibly wide ranging title to regulatory authority, but that they have been convinced that may be they should let them applied non neutral rules and see what happens, because that means that, if you did something that was crazy and that prompted a huge public backlash, we have to seek a clamp down, which would tend to inspire you as a company to not do something. That would inspire a huge backlash, because actually think there are a lot of reasonable non neutral things that cable companies could do so we now the normal way that than an ice people meter use because they do meter usage,
do it in a neutral way, and so what's it most, people get artificially slow broadband internet right. You'll have like the twenty five megabits per second package, even though, like the infrastructure that goes to your house supports fifty because they want to charge the people who really want to use fifty a little bit more money right. So it's is incredibly inefficient price discrimination scheme. If you could go to those exact same people and say everybody gets fifty, but unless you pay extra Your video is gonna be downgraded to forty p, which is how the cell phone companies do it. That would be just like a much more efficient way of doing that price discrimination package right, like It would allow people who don't want to use tons and tons and tons of screen of streaming video to just get the fastest entered at that
has already been built for them, which, right now you have tons of people not accessing the infrastructure that exists, and it's really bad. So said, look will let you do not neutral things, but we also have the hammer of tragedy to like discipline. You if we think you're fucking around that to me. Are potentially better outcome than what what he's talking about doing witches. tying the FCC hands. So no matter what happens? There's not going to be a regulatory responds, and you know why. I think the viewpoint that, that that pie wants to put forward is well know. We need to give these providers like the certainty of deregulation, to unleash the utopian era of high investment, but that to me I think, that's disingenuous. Will We talking about a small community of people, a handful of large technology companies
and even smaller number of big bribery, something really profitable even now by the way these are all profitable company is an when this is like mine, goes a little bit against the grain of contemporary american thinking, but like what you really want to do here is get policy makers and the interested companies like in a room together, unlike get them to work together and do something that would be better rather than say. We gonna have this arms length posture where we have to regulate nothing and then just kind of hope that, more investment by think. There's also question: we are talking about this. Just before we start taping of a white neutrality. Are you going fork? They think, like the idea, you suggest idea that unit people you, if you don't pay more you're gonna get those downgraded. Video is one type of black Charlie is very different from the one that Ezra suggested where,
gas as your rocks. Article load super speedy because were an investor in vocs. In any thing, those feel pretty different to people I think the debate is often about the latter. The idea of vertical integration that we might get faster Recipes Comcast, you other folks, were prioritize. Their own content versus I read the idea of like pain. Moors like, have higher video quality that as you know, a kind of us back to the cell phone example you were mentioning earlier about house. On plans of often worked that feels less like you're picking out like one particular, video provider. Verse says a class of providers, not just one particular video provider website Again- and I do think I mean I think, vision, important question in in the Anti trust aspect of this which is like. Why have we allowed integration of wire owner?
with content owners. Right I mean this is an issue that is coming up in the eighty anti time Warner merger, but obviously the existence of Comcast as a convoy for it and the former corporate existence of Time Warner was a thing where you know so Comcast, as they there a cable company way like they own cable infrastructure and internet infrastructure, but they also own cable channels, and they also own tv movie studios, and they also invest in digital media brands. And I I think, especially if we allow a non neutral internet, we should really really really question like why we are providing that form. A vertical integration that The deal that, with the agreement that allowed the sort of creation of the Comcast NBC Universal merger involves Comcast like promising a million times that they're not going to like it lucidly advantage their own content, but
natural ask: what is the purpose of this corporate structure, if not to implicitly de jure on content, and I think people suspicion these mergers, these regulatory changes there looking for net neutrality, that there is like a long game being played here and which we are eventually envisioning. Some kind of fully integrate stream in which, if you live in a Comcast neighborhood you I can't watch CBS programming and, like that's, really bad, but it does seem to me that, like Anti Trust law and merger enforcement, rather than telecommunications, is the tool that we have traditionally used it to prevent this kind. Integration, like am a bank, can't also on a hardware store, is like a principle of American ah drugstore soon on health insurance company, which comes up zero blue kept there. So you I mean to me. That is how I would address vertical integration, one
before one of the odd things happening here is that the transition is blocking the eighty tea time Warner Mercer. At the same time, the day are running these net neutrality. Yeah me differently are ours. If it is an interesting knowed, pushing in different directions just want to say that the present incident late reading member who is one of the just a pieces of all this, which I, think just really drives where you come down, is how much too trust, our regulators, and how much do you trust the ice peace, because look if we were in Sweden or if we were under the Obama administration, I might actually have a different view of this, but one of them, the difficulties here. Isn't it I don't trust. Donald trumps F see particularly address Donald Trump. I dont think that he is putting regulators in charge of things who have us, strong consumer oriented so I dont think that they are. I don't think there trying to create a structure, They're going to come in and regulate offences are, I think, they're trying to create one
don't come in and regulate offences, and then I s peace. This goes a little bit amounts point about Well? How do you read this massive effort at vertical integration happening cross. Basically, all of these companies not just buying content but constructing content, platforms, Oh like go. Ninety under horizon. species are not popular play or sick people. Do not seem to feel they are heavily responsive to consumer demand. I recognise that you know Gus and others like me, they they had their answers for four, why nobody likes them, but it is worth noting that only six four percent of Americans are satisfied with their there. There internet service provider, which has the lowest rating of all industry surveyed by the american customer satisfaction indexes, are not popular companies at that all, amongst them the least popular companies in the country and in public Good reason, you know we're talking about ice, be competition. Here, it's worth noting that there have been a bunch of cities and states. been interested in creating municipal broadband using fibre and these
as peace have lobbied heavily at the state by legislation. about to stop that from happening. I mean they use their Are they use our money to block other entrance from coming into the market? Philly public entrance are coming, market, which I think should concern us. The other thing that concerns me where is the more something becomes part of your business model, the more you fight to protect it and so there is a way in which right now, because as much as the ice peace have not been under in a world where they could heavily use, Paypal a meter heavily discriminate against Africans to traffic, and that does not happen MRS Mama, they fought on neutrality that they would like more freedom, but it's a life or death struggle. For that. These are very, very powerful, very profitable companies working in a neutral regulatory regime already in a world where we ve had six eight ten years and its become really important to them and their that much bigger end, though, that much more profitable.
But also at that point they begin using their leverage in using their power to do anti consumer things. I think they're going to be much harder to stop. I think you'll be mud, bail out much more power. I think the regulators will be much more evident. I think that you know it is That one might not want to come in at that point, but but, but can one I think, it'll be really difficult and so MIKE Sir Here is that, on the one hand, the sort of net neutrality also on com net neutrality opponents, but the opponents of broad regulatory authority on the part of regulators. Are arguing that hey look. If it's a problem down the road will fix it, but except those not a clear problem now like let's not be too heavy handed here, and I think you get it make the reverse argument just as easily, which is if there is a problem, down the road. We probably won't be able to fix it, because that's not how political power works, so data is not a problem at the moment and regular,
have a lot of power, and you recognise that, because of their political power works you I won't be able to something if you only she's forces for ten years like why are we change anything it s. Just keep going down the path for on. We have more. Merger talk ahead, coming up, and we all know what that means. Parties presents an ugly sweaters goto shaving can really help you with the ugly sweaters, but I can't help you impress everyone on your holiday gift lest this year ticket to the ninth with twelve shaman creams and more Christmas or formulae with essential oils in botanical ingredients secrets, to the office for from spicy. Instead, proceed warm and would see the art of shaming, sophisticated fragrances are well suited. Anyone. It had the office after your bearded bodies at the other shaving stubble bomb beard, oil beard, farm and styling blacksmiths, because friends, don't let friends beards get out of control for favorite uncle had The artist shavings, barber spies for royal save in a day of funding for a little
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So earlier this week we got news of a kind of unusual healthcare merger that is in the works. The drugstore cv, us that you are, probably familiar with and purchase products at they are, it appears there going to be purchasing Bee health insurance. Company Edna, which has an You see a lot of great I'm jokes about how There are seat, will be very original ever goin on Twitter, but also want her seat will be really is always. Yes, I just heard seat. There are many more sense with. Alas, yes, you now, if I get the sixty nine billion I've heard of you very like many of you and I will use Otto check out, I hope Ghana, you now by or you could get the insurance company on the phone twenty four hours a day, slowness in good what we got our jokes here too. No, but it actually is a really interesting unusual healthcare merger that is harder to understand that a lot of mergers we seen enough.
lately, is a lot of mergers, is typically see in health care is one hospital system buying another one health insurance plan being another and generally. What we know about those is when you have more concise, more consolidation, it gets worse for consumers. Hospitals often say you know where we're going to become more efficient, and maybe they do, but Most of the research we have suggest they hold onto those efficiency is that they just raise the prices when there is less competition in their market. The same thing with health insurers. When you see- and we recently had a health insurance merger blocked, I Obama administration for worries that it would be very bad for kids, Myers, and this been kind of an arms race way between the hospitals and the entire year. Yes, hospitals keep consolidating, ensures, keep consolidating, because if you're going to have one hospital chain in town You want to bring in a really big health insurance company to negotiate with the house. But I'll chain, end
if your interest in this research there's a woman at the Harvard Business School Lee more, Daphne has really done most that groundbreaking research on this and really finds that it usually does an end well for consumers, the atmosphere The S merger is very different and in thing to healthcare nerds, because we ve never really seen a dry store by health insurance company, is much more of a vertical merger than it is the ones we ve seen between an insurance companies between hospitals and it also gets into like a lot of those weird gots of how health care work. So one of the big parts of the sea, vs merger, you no part of it, they say, is about the minute clinics about providing care to members that they can provide care more cheaply, because when I see people in these retail settings and that they are going to be competitive and that sort of way. But what are they things going on behind the scenes is CBS as one of the country's largest pharmacy, but
that managers what's a pharmacy benefits, which is one of these like we're back and like I get in was just trying to learn about them tat. There is such an odd part of the american healthcare system farm, is almost insurance companies contractor they pharmacy benefit manager to know sheet with drug companies to figure out drug prices and essential give them like an entire formulary. So usually does not sit down with Pfizer to knock out they. Here's the drug prices Stead CBS, which is also a pharmacy benefit manager. It gets Edna gets the These are not actually its partners and is making up I'm some theoretical wind Winesburg its Edna table across all these. Companies to table and says ok, we represent like for insurance companies visor, we want a good deal. this drug- or you know we're gonna, go with the thing that our competitor Abbe makes ends. The idea is to create more market power,
You know consolidated in one of these pharmacy benefit managers. There they ve been a lot of attention paid to farmers e benefit managers in the healthcare space in the few in recent years. There is a suggestion that they are keeping a lot of those savings for themselves that there This I'd, regulatory or not merely bureaucratic cog in the health care stop that its middle man layer is unclear with saving money. If it is saving money, it seems like a lot of those savings are just going to the pharmacy benefit, manage themselves than being passed on to the insurance companies. What at those doing here, and I will say, a lot My really sure how to think about it. So there is no clear answer what comes out of this, but that would be buying one of the country's largest. Pharmacy benefit. Managers. Cbs, presumably, would not work with other companies. Once acquired by Edna and fear is a question of you know: do they
A more efficient today share these savings way. Can I ask you: is it true that the theory that you could no longer go into CBS, and so these are separate till it's out of that for the farmer setting the pharmacy, not the pharmacy benefit manager, I use it knows this is this is very good for anything, so so you could likely they expect asian as like you could have you no Keyser and still go failure. Prescriptions CBS Keyser could not work with CBS to negotiate its drug benefits anymore. I gotta like it could not have CBS Pharmacy benefit manager. So the idea is purchased it or take it off the market. They would work together and You know. Some economists amassed in fact made this argument in the upshot recently think there could actually be some benefits from this. That pharmacy benefit from The benefit managers have long been this kind of middle man. If you enter it into the health insurance company that ie. might see some of those. Some of them
go away, but again does actually goes back a little bit. You are caught our conversation round net neutrality that assumption kind of rests on their being some kind of competitive market that he had no wants to words premiums, because it's trying to attract more people to its health insurance. and a lot of places. I don't think. That's that's true. I think you know not have places at nice kind of the dominant carrier, if you want to go to the hospital, is you need to get that no plan and don't you that not a lot of places in markets are pretty concentrated. Is there a? Can? I ask you a question. I've heard prescription drugs are a lot cheaper in in many foreign countries, Just Canada or heard that, as we know, is, is that, because those trees have consolidated their insurers with the pharmacy benefit managers to gain more efficient bargaining strength. I mean it You could say that they have in a way that its all run by the government leaders like I, don't know what area? What is your argument that George, this is rose? Gonna go those issue, which is that I think
argument for this merger works better? an argument for single pair right right that we have all these middle men creams journeying off of this this guy. It's crazy. You have like a real agree on the need for our records erika drugs, but they kept the profits, for example, the events that are good idea, so like it is interesting because legalise organs might be correct, but their arguments for single pair that you one could sell? They should leave along and see as like matters menacingly Syria right now is clear. It is what is it that is like Isabel Heart associate. Bat laugh. was not even a joke that has happened here. These are good arguments, possibly the merger and they are better arguments for single parents are basically the argument for this merger. Is it. The healthcare system is too fractured.
The payers need more market power to get good deals that there are did. That is big rents. Big economic benefits be extracted out by providers that Just like a lot of lake administrate they have both said and you know fractured ness, and you know it that there's a dead there. We could use of more centralisation and also by the way, to go even further in single pair towards much more integrated systems like say, Singapore that it be better if the payer so was integrated into the point of care, Into the medical delivery system itself and allow Others say: there's an insurance company is also the house, but if the idea is to be so greatly as it ensures that have only a minute clinics right and then you could go get primary care. There you'll get a lot of primary care. Singapore from primary care providers owned by the government. And in the future, by the way, the UK, of course, which on zone hospitals emitted soon a bunch of places. I sort of sea the argument for a highly highly competitive.
Insurance system, I just don't think it's really working. You can see the conceptual argument for I think for lotteries. It doesn't work that well and I can see the argument for a highly consolidate system, in which case I think, you're, better off using public players, but This seems to me to be an admission that the highly consolidated system is even where the players themselves are going, and I The government needs to like step in and reverse this massive wave consolidation that has happened all across the industry, including in hospitals, to go back to the idea of like, we want is much more aggressive, anti trust or I think it's been overdue, closer close it a meal. Maybe we should just have Medicare for all yeah Cynthia S. Four is like if you had the age ass, so there was no choice but whose home by a private company, so they just made the prices really how to add an item Senator businesslike. I mean it.
member this an earlier phase when it was the insurance companies consolidating grade- and it was like, while also be good if they can bargain more with hospitals. But then the little started. Consolidating and they like? While we can part of the doktor? It's like a bit like at the bottom of this? Don't we just have link if we want the prices to be lower, have you read more about this, since they could just pass a law and make the prices they cut, but they can't right now. So that's like not really in the in the cards, but the thing that makes me skeptical I read these arguments that you know you got rid of. for that eventually get rid of the pharmacy benefit manager that it's just you know the insurance company its own. The pharmacy benefit manager its negotiating directly. I don't see why you don't keep that money that, like the pharmacy, an event managers in keeping and why not keep it just said and then keeping at sea. We ask you now, given it at NASA vs YO
because there is so little incentive to am to lower your premium like when you are one of the only games in town or if here be working with people. Who are Law are generally like at now, and then we saw the asian marketplaces. They mostly just sell insurance to large companies and vocs will just past, onto us, unlike our premiums of up a little bit, but its export tax advantage to give us health insurance that there is it's a lot of theirs. Lot of incentive to take that money. You save and pass that on two counts: murders and that's what we ve seen like ITALY, more Daphne's research that there are often these plants. is of greater efficiency, and sometimes they realise that they do become more efficient, but those gains just say What is the reason if you are at Nancy VS to pass gains onto our consumers, and I dont think the reasons are,
So I think you're right, but I think it is worth making at least the theoretical argument for their strong, which is their party. The employer level be box, media does look every year to decide who is the contract with to cover its people ass, do most big companies and we ve changed it in the time I've been here right. We were getting a better deal from company and I went to another company I've I've had that happened at other place. I've been to I'm coming at some of our price, sensitive, actually won? The recent more worried about this is that the thing that there, overall most sensitive to, though, is that their employees, like their health LAN printed easier if you're do going after employees who are in demand and market and We will see, but it doesn't seem like we would see that she began walking out other health plans, but to the extent that this advantage to be on an Edna plan at CVS, maybe just and integrate,
maybe ease right. If so, how much easier to work with our pharmacy? It's all in great in the Alps and whatever it might be, where you could take the minute clinics becoming in some way marks. Absolutely you at number, and so one version of this is, if you believe that you're dealing with perfect price competition, then something like this, you you could imagine but I think what we seen over and over and over and over and over again and health insurance, is it you're not dealing with perfect price competition? In fact, people are relatively compared to other things, more price and sensitive and very soon it is to benefits there very sensitive to ease. They are very sensitive to. Being able to use the doctors and pharmacies and such that they have been using and that are close to them, and so the more you are able to leverage that side of it the lessons and if you would have to keep prices down right is one thing I could see as acceding asked developing the minute annex almost into like of one medical type model of the late, making that a service exclusive to Edna
where's that I guess like this would be the case for that that it might actually work benefit. Consumers is that you'd have this kind of prime care model. That would be good for the insurance company variable cut off some of the more expensive care and that you know like I've. I received nothing from one medical. I just like me a patient there, because they have short weights and, like it's easy to schedule, nine. They let me text with their doctors and like those are, Services- I I really like and when I was shopping for health insurance. A seer like I wanted a plan that include that I was less pray sensitive and like much more like you're saying interested in the benefits, I was right it Salome flicked. The argument here for a second and say that this is the argument people hoop for having lot of private insurers will make, and I think the argument that one would make for a merger like this, which is that private insurers or owing to try to innovate on service on delivery on other things in ways that you know, Medicare does not and so it's great CBS by that I'm sorry Edna by CBS and is gonna Sylvia
is that serious myself, I'm sorry and builds out this massive new network, a pretty in primary integrated primary care, insurance delivery without works, other players in the market have to emulate. At United Health is already doing their own kind of vertical consolidation. It's different and a low but more complicated, but it's there, others some! You know you it totally. Imagine some baggage or buying one medical and scaling back very very rapidly at a more premium level ended this kind of innovation that you're always hoping to see in the private insurance market and then actually this kind integration into primary care is great, and if you pad Is it that the argument actually foregoing did single pairs, an argument about prices, whereas the argument for staying in this kind of weird fraction system is an argument for innovation, If you believe this is innovation that could ultimately prove worthwhile. I think it's worth giving the indifferent perspire around the steel as somebody who used to cover the region.
industry more weight looking at this to the other ones of the telescope, which you have is CV right is it is a fact see company had started an industry that we associate with the sale of prescription. Drugs but obviously a modern day. Cbs is like a general merchandise, store disinfected, CBS near office that doesn't have a pharmacy unit attached to it. Lots of CBS locations don't have many clinics. All the one thing they did was it. They used their existence as a retailer of prescription drugs to get into the pharmaceutical benefits manager feel and one nice thing about their ppm business is that they are not competing with Amazon, which is like destroying brick and mortar retail, slowly but surely, and so they are doing here is simply like not realizing any efficient, he's at all or in like a good or a bad way, but just try,
kind of like keep climbing the ladder and get further and further away from direct competition with dislike. Jeff Jeff owes retail go I ask that he'd like seem natural to integrate retail sales of prescription drugs with pharmacy benefit management, and now, if you can integrate pharmacy benefit management with health insurance management, you can make at some future point. Just like cell CBS is real estate assets get some cash pay out a special dividend, and now you're health insurance company and, like that, just like might be an attractive series of business. Moves that reflect no intention to like do anything. Business wise, but just like, for example, like Hilton right, which you might once was a company that owned and built hotels they now strictly manage and licence branding. They don't own any real estate assets, because I don't like brands, evolve over time and try to get out of you. No bad businesses and into
once I'm just gonna put opinion that I think one thing we should do with episode on Anti Trust in Amazon TAT is, I think, the question how to think about Amazon and all this there, that you glanced down there you glancing they touched on. There is a really it s, a great. Why don't ask us no question about that is well address. It separate, thereby playing a role and so Amazon's getting into the pharmacy business tee, so they have licences and twelve states. Now did you wholesale pharmacy? They hear how they can't sell, directly Hence our drugs online, but, like I'm sure, Jeff Pesos would love to you know. Let me film description online and of Amazon mail to me, so I would also load there is also. There is also some chick. Aerobatic what role this is a defensive move against Amazon slowly encroaching into the pharmacy space project. Another break, If you follow business news at all, you may have heard of red hot legendary Silicon Valley, investment entrepreneur. He cofounded linked and invested early in Facebook and Airbus D ever an attack goes to him for advice on how to make some huge and he's back.
But the second season of his amazing podcast masters of scale. Anders like Mark Zuckerberg, Facebook, brain Chaskey of Airbus B. We Hastings at Netflix, Cheryl Sandberg, also from Facebook care golden hint, water and the guess. I'm just retelling the same story you always here they ve got, Netflix sheriff Sandberg also from Facebook care Golden, if hint, water and the guess, I'm just retelling the same stories you always here, they ve got real tools and underground advice that you can use to build your business to start The massive scale always honest, always useful, often pretty funny, there's no jargon, no posturing, guesser. Fifty fifty gender balance its aids- it's a refreshing, looked biotech show actually here from women to be sure to catch. The new masters are scale with Paypal, founder Peter TEAL Vm, wherein Google's day green slacks to have Butterfield and much much. So maybe this week, as is one that I worried about, is the latest in a long series of studies that Roger Chatty and his colleagues at the equality of opportunity. Pride
it had been doing. They produce a lot of county level maps of the United States where they showed the geography of different things in this case, either did you wrap go component was in some ways, not as it as interesting as it isn't in some of these and they're looking at. They take a big list of patent data and they linked it up with individual income tax return data, so they're able to analyze the tistic Ali for the first time. What are the demographic characteristics of, people who get patents in the United States and they show that people get patents tend to be white or asian, as opposed to blacker hispanic. They tend to be men as opposed to women, and they tend to have parents who were in the top twenty percent of the income distribution, as opposed to the bottom, eighty percent, none of that is extraordinarily shocking under its own terms than anything. It's probably what you would have guessed if I asked you to take a wild guess at it,
good then able to integrate that with some interesting information about test scores and they show that from the sort of favoured groups where that, if you're looking at white men from ass when families, that you're math and science test scores when you're young in school very heavily correlate with your odds of becoming an inventor at which is, I mean it so too obvious right, it's a get. Yet we pray smart and have technical skills to make useful. mentions. Eyebolts fascinating is in the disfavour groups right for for women and especially for lower income people for black and nineteen o people. It's like a totally flat curve like the kids, who are bad at math, don't become inventors, but the kids. You are good at math. Also don't become adventures and The implication is that there's a relic. large number of highly skilled, low income, black latino and female, people who are not receiving
holding test scores constant. You would have quadrupling of the amount of inventors and patent filings, no course, as a bit of a as detestable hand, wave em, maybe there's a finite list of things that could be invented in the universe, but it is at least a powerful suggestion that if we sort of broke down maybe there's a fine, a list of things that could be invented in the universe. But it is at least a powerful suggestion that if we sort of broke down some of the barriers to opportunity that exist, we could have a lot more innovation. Can you there's one thing I jumped army that a thousand? about the roles of having griping it's a growing up in an area that has a lot of female year through those a little bit about the roles of having greater, the growing up in an area that has a lot of female year, inventors, yes so wonderingly find. Is that people who grow up in metro areas that have a lot of inventors are more likely to become inventors are then they got?
Finally, this is sort of domain, specific right, so The Boston area has a lot of technology that relates to computers and lot that relates to medical devices, but they finally in Boston a lot of the people. From the Minneapolis area. Work in the medical devices field, where people who grew up in Silicon Valley, Workin the computers field, so that its like a depends not just that there is innovation, but specifically what you innovate in sulphur. Detroit, that's cars, so that's fascinating, but then they further fine that, if you look at woman, enters, who are relatively rare, or most measures are men, but that for woman inventors, this exact same childhood thing holds, but that it holds for how many women there were working in those partake.
Our fields so that the Honolulu area right has a disproportionate number of women inventors compared to most other places, and so women from the honey, Women who grow up in Honolulu area, regardless of where they live, now, are more likely the inventors than women from other cities in the United States It also seems to hold for the specific some fields to that. Sample size? You start to get small the leg, more fine grained you look at it beat. It seems like people really sort of copy, people who are similar to the adults that they grew up around any not really clear from this research why or exactly how that that works? Well, interesting thing like do, people do likes I'm kids in Minneapolis know proudly that that area, is a hub of the medical devices like. I know that, but I like read a lot of papers about.
the thing to do with these sort of very big groundbreaking empirical projects is deciding. What might you have thought before that you should not change how you think about it now, and I think this has two or three things like that. One thing that you might have thought before assigned in the dominant political view, isn't it in you should not change how you think about it now, and I think this has two or three things like that One thing that you might have thought before assigned in the dominant political view is that innovation is very heavily driven by marginal rewards. You gain from that innovation and end. They basically find that that's not true, because, because innovations are really do pay off path, so big and because most innovations don't pay off at all marginal tax rates. Tax cuts that kind of thing. But of making innovation more lucrative does not seem to be you at all? It's also a time shifting question when you pay off off associated with when you're actually starting to work on it, it is that the holes some doesn't make sense so when they, when they run that analysis and with tax down, they actually have the ability to do it there
to be saying lower your prior about how much I'll make rewards and tax cuts, and things like that are important. Driving information. By I'm just saying. I really really raise up your sense of how much representation matters so representations incredibly Jordan is incredibly important in a more fine grain and civic wave and people realize it matters not just if there inventors around you, but if the inventors are like you demographically and then it even then it also matters what they are inventing in, because even if you move away later, you're more likely tat did to stay in that same invention domain, so think. That's real important. I think that there's more more research, it is showing just how important presentation is- and I think representation is one of these things- that we very easy underweight. I shouldn't say we ethic aught of like white men politics really easily under waited it's like. Why does it matter? You know how many folks of Ex Democrat,
group. There are and why I'm field, but it appears to matter a tremendous amount and also by the way that something that public policy philanthropic organization such a could really do something about right. I mean it would not be incredibly difficult to create much more dedicated effort. Philanthropies could do this. How the government could do this of just train to make sure that the people are exposed to more folks like them who are doing things you might want them to do in the future the fact that there are a lot of female notice from the Honolulu area being there could be road tore up. You know there's all kinds of things you can do that are interesting here, but but rubber patient really matters, and then finally, I think there is just- clear that this, I think, is not a huge updating of the prior, but I think and it matter so much, and I thought this was one of the really striking. Opportunity matters a lot: what kind of socio economic background or coming from matters a lot and it matter So much- and I thought this was one of the really striking statistics that a
or by blacker latino kid who is actually at the top of the mass distribution and third grade is a basic, become an inventor as a mediocre or lessen mediocre wicked who more average income distribution. So what you're basically saying- and I mean this- is really the twice as good phenomenon. It inaction that It's not really just about talent to in order to overcome Socio economic, see ear. You really like, like kids More privileged backgrounds can be worse than average, do as well as the absolute was brilliant kids from disadvantaged backgrounds, and that should really upset. Like that's a really bad thing. It's a bad thing, with huge overall implications for our economy. Ducas were missing out on on what they call these lost Einstein's, and you know tat. sending you thought that This was driven and a lot to be said that you have a deterministic view of poverty. You think that its ability doing all this they should make you update that prior. I think it's interesting to get there
paper in the middle of the tax debate we're having right now, where were talking a lot about how to grow the economy, how to stimulate growth. There is in the tax bill. As you know, you guys talk about fighting the weeds. There is a preference for cutting marginal rates for giving people more incentives to innovate, and a lot of that I mean there's very little unless that focuses on creating those opportunities earlier life. Anything. I say there are things that cut against. Creating those up in these earlier life like getting rid of the earth starting to tax tuition, waivers, which I think would be a huge barrier for someone who Does that aptitude, who is good at Matthew, wants to get a phd in you'd science, but now is to find a way to pay like eight thousand dollars in taxes on Monday, that they're, not actually, receiving a lot of the intervention, though it really focuses on Wednesday. Meda, like when someone has their company and they are creating
things and they are doing things. I think that shoddy paper that we're talking about now like the prior, I would see updating is when should the as the intervention happened like when is the moment that you are going to capture that loss, innovation and I think it suggested it's much. Earlier? I don't think it's just a clear policy into engine like I don't know: what is the policy tool you, you and I'm sure, there's many, you could use to try and increased representation to increase the ability to see people like you in the roles that you want to get into, but I think the clear thing that I see as it suggests moving innovation interventions much much earlier, if you're just doing them for the people who have already become invent There is a new kind of like given up that whole sector of like last Einstein's is, as I was saying,
by targeting by targeting those folks who are already successful attack this whole other severe doesn't get as many policy interventions making. This chatty paper suggests really shed yeah. I mean I mean I don't know just to like pound the table on slightly to the image of conservative policymaking, weight is against very straight out of of ATLAS shrugged. Why is this idea that, like what is happening today in America so people who totally could be making great dynamic world changing businesses are simply declining to do that, because they would not become rich enough if they did, and so the like, they're out golfing instead, but if their tax rates were lower, they would come in off the golf course, and they would be this, like amazing staff, that made us all.
Ex rates were lower. They would come in off the golf course, and they would be this like amazing stuff that made us all. So much better off than we didn't even care that the income distribution is good. I think it's obviously crazy if you say it, but like this kind of research, it tends to help confirm that like, in fact there who cut of people who it seems like when they were really little, kids were indistinguishable from the people who do go on to do these big inventions, but along the way through you know, it can be a whole mix of things, but, like a lack of representation of people were like them, just poor farmers in the school system. You know Appertain these to go to college informational barriers whatever it is right that, like people are not contributing as much as it seem like, they ones could have used it and have the chance to develop their full opportune d not because they were sitting there. Thinking like man, you know Mark Zuckerberg, it seems like his after tax. Well
is like not really as big as his pre tax wealth sounded like so I'm just not going to bother. I'm gonna buy, go manage the sea vs instead, unlike the bad, is really like. That is what is wagging everything that happens in american policy making. Is this idea that people are just like they could do it, but they just they choose not to, but if we cut their taxes than they're going to end up, I don't. I don't see anything about like the life cycles of actual human beings that supports that view that's a weeds, weeds love it. What thanks to everybody for for listening? I think your producer, Peter Leonard, check out the weeds Facebook group check out the weeds newsletter took us. I was Julia's. Other pod casts. Ask us questions in the Facebook group I know some of the new weeds loose. I dont know how you would you and has to do with you check out the news letter you go to box tat, calm, slash, weeds, Haifa NEWS letter. You will find it there. It is
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Transcript generated on 2021-09-12.