The emergence of a new category of weight-loss drugs to replace the flawed cigarette and amphetamine “treatments” of yesteryear is a testament to humanity’s ability to innovate, and of the free market’s ability to turn an idea into a product. Semaglutide (a glucagon-like peptide 1 (GLP-1) receptor peptidomimetic agonist, so now you know), has been developed by Novo Nordisk, the Danish company which has long been a leader in the field of diabetes treatment (it holds an approximately 45 percent share of the global insulin market), as a treatment for that disease. Semaglutide has also proved effective as a way to combat obesity. Sold as Wegovy, it has been approved by the FDA as a treatment for weight-loss since 2021. Another Novo semaglutide formulation, the anti-diabetes drug sold under the Ozempic brand (which has less semaglutide), is widely used off-label as a weight loss treatment, but has yet to be approved for this purpose by the FDA. A third Novo semaglutide product, Rybelsus, which can, unlike the other two, be taken orally rather than injected, is also on the market as an anti-diabetes treatment, and it too, it seems, can be used against obesity, although it has not been approved for that application by the FDA.
Interestingly, there are encouraging signs that semaglutide may act as a way to treat addictions such as to cigarettes, alcohol, binge-eating, cocaine, and opioids. It’s early days yet, but this Wall Street Journal report from June explains why this might be:
Drugs like Ozempic mimic the hormone GLP-1 that is naturally released from the intestines and helps regulate glucose levels and suppress hunger.
It is also naturally produced in the brain stem—affecting activity of many brain regions, including those involved in impulse control, memory formation and reward, according to neuroscientists and endocrinologists.
The article is paywalled but is well worth reading. Josh Barro (who is taking Wegovy) also has a good basic description of how it works in his Substack:
Semaglutide works by mimicking the hormone GLP-1, which has digestion-related effects on multiple organs. It slows the emptying of the stomach, and so discourages eating by making you feel more full. In the pancreas, it encourages production of insulin; I’m not diabetic, but this is why it’s also used to treat diabetes. And it sends a message of satiety to the brain — essentially, it turns off the “eat eat eat” voice.
And not just, it seems, the “eat eat eat” voice. There’s an interesting debate to be had (but not now) about what this says about man the machine. “We may”, writes Josh Barro, “have stumbled upon a drug class that broadly improves people’s judgment and decision-making. Isn’t that amazing?”
Yes.
It may be that the effect of these drugs starts to fade once someone stops taking them. This may mean either that they should be used as an opportunity to make a fresh, healthier start, or, to speculate, that they become part of a stop-go regime (someone takes them for six months, and holds off for a while, then resumes). Or maybe patients should just take them indefinitely. The last may not be easy or desirable. For now, these drugs are expensive, and no one really knows what the medical consequences of long-term use might be. Patients in the UK’s National Health Service may have to wait for the opportunity to find out: At the moment those eligible for treatment cannot stay on it for more than two years.
I haven’t the expertise to judge how well these products work, but the data seem encouraging, as are press reports and, indeed, Barro’s commentary. The same can be said of what I’ve been told by couple of people I know who have taken or are taking either Wegovy or Ozempic (and no, one of those “people” is not me, although I’m certainly intrigued: I could lose a pound or five). As with many medicines there are side-effects, which vary from person to person, and can be uncomfortable, or worse).
But this is the Capital Letter: Back to the essentials: Novo’s stock is up strongly! As of the time of writing, it has risen nearly 50 percent this year in U.S. dollar terms. Novo’s stock market capitalization is now larger than Denmark’s GDP, and the company is raking in so much foreign currency that the Danish central bank has been forced to cut interest rates in order to keep the kroner within the range to which it is pegged to the euro. Denmark’s pharmaceutical sector (in which Novo is by far the largest company) contributed two-thirds of the country’s economic growth last year, and is mainly what is keeping the country out of recession this year.
There are also other weight-loss drugs hitting the market, including Eli Lilly’s Mounjaro (tirzepatide), a novel dual GIP/GLP-1 receptor agonist now used for diabetes treatment but which also shows promise in fighting fat. (Although this drug too has yet to be approved by the FDA for that purpose.) Eli Lilly’s stock is up nearly two-thirds this year.
According to the NIH, the obesity “epidemic” (a ludicrous term for it, but that’s a discussion for another time) accounts for some 300,000 deaths a year in the U.S. (and there are significantly higher estimates). Under the circumstances, therefore, the arrival of weight-busters that work is good news medically and it may present some, ahem, cosmetic advantages too.
But some of the reaction to the news of their arrival has been revealing.
In June, Bloomberg, an operation owned by a notorious food policeman, ran a predictably puritanical response, written by Emma Court:
Are new weight loss drugs distracting us from choosing to eat more healthy food?
No, not eating enough vegetables is a choice. And just because it is a choice of which the writer disapproves does not mean that it is purely the result of “distraction”.
Court:
Doctors have long advised people to diet, even as the world around them remained rich in calories. Ideally, public health would be helping out. And there have been some baby steps, like adding calorie counts to menus and taxing unhealthy foods like sugary drinks.
The magic word there is “advised.” As various doctors in my family have said over the years, a doctor’s job is to advise, not tell. Taxing “unhealthy foods like sugary drinks” sounds a lot like telling too me. And it also sounds like the actions of a ruling class that does not understand that there are places where the reach of the state should not extend.
Court:
What’s more, paying for these incredibly expensive drugs could come at the expense of other public-health initiatives, like improving what we eat and creating environments that help us be more active, as David Ludwig of Harvard Medical School and Jens Juul Holst of the University of Copenhagen wrote in a May piece for the journal JAMA.
It would be nonsense to argue that the (currently high) cost of these drugs will have any impact on the ability of the public-health authorities to print a few leaflets telling us what to eat. However, if these initiatives were to involve “creating environments that help us be more active” at taxpayer expense, well, facilities for children apart, that reads a lot like a reference to car-hostile measures. And if that’s the case, the less money to finance them, the better. All of that said, it is hard to imagine that these drugs (despite their current high cost) will not save money.
Even if not enough people are hitting the cycle path, weight loss will improve the health of those who need to lose it, reducing the burden on health-care systems. They may live longer, of course, theoretically adding to the burden on retirement systems, but, if they are healthier, they may be able to work longer as well. And remember, these drugs appear to combat other cravings, too. To take one example, imagine the cost savings (let alone all the human benefits) if these drugs can help combat the scourge of opioid abuse.
Barro has plenty to say on this score:
[M]y basic view is that more than half the population ought to be on these drugs and probably will be within a decade or two. Those people will generally lose 15% or more of their body weight — probably more, given that similar drugs in development appear to be even more effective than the ones already on the market — and will keep it off so long as they stay on the drugs, which may well need to be indefinitely. All that weight loss will improve health outcomes in obvious ways like reducing cardiovascular disease and diabetes, and in less obvious ways like fewer people needing knee replacements or kidney dialysis.
Lower disease burden will mean fewer sick days and higher labor productivity. And there will be huge gains in personal happiness: well over a hundred million Americans who have been struggling all their lives to control their weight will be finally succeeding at it, and in a way that does not involve a great deal of mental effort or perceived sacrifice. People will gain self-esteem, they’ll be relieved of negative feelings about their weight, and they’ll be able to redirect (often substantial) energy they once devoted to dieting to other endeavors.
And that’s just considering the drugs’ intended effects on weight (and diabetes). There’s also the matter of other improvements in impulse control — how these drugs seem to have the positive side effect of helping at least some people control substance use, gambling, compulsive shopping, and other problem behaviors [. . .]
I think the economic effects of widespread adoption of GLP-1 drugs are likely to look like this: You’ll get positive supply-side effects from improvements to population health and worker productivity, and on the demand side, you’ll get shifts away from specific products and services whose consumption is inhibited by the drugs (food, alcohol, gambling, certain medical treatments) which will then lead to a rise in demand for other products and services as consumers find they have more money available to spend on them.
He also (rightly) queries how long these drugs will remain that expensive:
[M]anufacturing capacity for the drugs will grow to meet demand, and similar competing drugs from multiple manufacturers are likely to come on the market. This will create a situation where manufacturers must compete on price well before any of their patents expire — that is, prices should come down, a lot.
Given the chance, markets will do their thing.
Inevitably, Bloomberg’s Court finishes her article with a comment from the Center for Science in the Public Interest, an inaccurately named collection of cranks, killjoys, and nannies whose pronouncements are of interest only as a window into what cranks, killjoys, and nannies are complaining about (or insisting upon) now. I wrote about their activities in 2003 and 2005, and not much seems to have changed since then. Instead of celebrating this new scientific achievement, they are still grumbling about the wickedness of Big Food.
Part of the explanation for the puritanical response to this class of drugs is the sense that those who have, say, eaten too much, must be punished. This semaglutide escape route just seems too easy. Leaving aside the underlying obnoxiousness of that argument (also visible, incidentally, in the hair-shirt varieties of environmentalism), there is the fact that it is letting the perfect be the enemy of the good. Yes, it would be better if people chose not to overeat without the help of a pill, but if they (effectively) decide not to overeat by undergoing a treatment that makes that choice for them, that’s a good second best.
The growing success of weight-loss drugs is beginning to have an effect on other sectors of the economy. There may well be losers, including, obviously, manufacturers of diet products. To take another example, there are forecasts that these drugs will also hit fast food companies’ results, too. People will still eat fast food, but some of them, it is thought, will eat a lot less of it. The same may be true of alcohol.
A survey conducted by Morgan Stanley’s AlphaWise research unit found that people consumed 62% less alcohol while taking weight loss drugs. Among those consuming less, 22% said they stopped drinking alcohol entirely. Meanwhile, the firm expects the number of people taking obesity drugs to grow nearly fivefold over the next 10 years to about 7% of the US population, or 24 million people. That’s roughly the size of Texas…
Morgan Stanley has projected that 24 million people, or nearly 7% of the U.S. population, will be taking such medications in 2035.
Those people could cut their daily calorie consumption by as much as 30%, according to the firm, which surveyed over 300 patients. For a person on a 2,000-calorie diet, that could mean eliminating a one-ounce bag of salted potato chips, a bottle of soda and more each day.
Not great news for the snacks market.
Writing in the Daily Telegraph, Matthew Lynn considers some industries that may benefit from the new semaglutide era, such as airlines (“A report by the broker Jeffries last week estimated that United Airlines alone could save $80m a year if the average passenger weight fell by [10 lbs]”).
Bloomberg’s Matt Levine floats a more pessimistic idea:
I am not a scientist but I feel like some of what I read about these drugs suggest that they are almost universal demand suppressants, or at least that they are good at suppressing a lot of addictive behavior. Snacking, drinking, smoking, but what about scrolling Instagram or clicking online ads? Sure it starts with Slim Jims, but does it end there?
In his article, Barro counters the fear that these treatments might suppress too much demand than would be healthy for the economy. I think he’s right to. And Brian Albrecht also has little time for such concerns. Writing for Economic Forces, Albrecht (who has also written for Capital Matters) warns, essentially, that a variant of the broken-window fallacy might be taking root. This fallacy was highlighted and then demolished by the 19th-century French economist Frédéric Bastiat in That Which We See and That Which We Do Not See. Dominic Pino looked at this topic in some detail here, but to, put it simply, Bastiat rebutted the argument that a broken window can somehow be good for the economy:
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
Albrecht suspects a not dissimilar fallacy may be being generated by the spectacle of businesses threatened by weight-busting drugs. But like the Daily Telegraph’s Matthew Lynn, he can envisage the winners too. Yes, the makers of fizzy drinks, fast food, and cigarettes may face problems, but:
Is this a harm to business? Surely, three companies (PepsiCo, McDonald’s, and Altria) do not equal “business.” There are literally millions of businesses in the U.S., and we would never want to conclude business as a category is hurt by what happens to three companies.
This is the same as the idea that fixing the window reduces the demand for wood to burn, harming the sellers of wood, and therefore fixing the window is bad for business. But what about everyone else? The wood seller is a particular business. That is the seen. Bastiat teaches us to think about the economy overall. We need to look at the unseen.
And so (to put this very crudely) the money that would have gone to Pepsi’s shareholders and employees, now goes to Novo’s. Ignoring for a moment that Novo is (mainly) in Denmark, how much difference does that make? “The money”, argues Albrecht, “will likely be spent on similar things, and the ripple effects through the economy will be largely unchanged.”
I’d add that, in a market economy, companies have a way of responding to changing patterns of consumer demand.
WeightWatchers is getting into the booming prescription weight loss drug business.
The company, now known as WW International, will buy Sequence, a telehealth subscription service that connects patients with doctors who can prescribe weight-loss and diabetes drugs, including the hot new diabetes drug Ozempic.
If people start drinking less beer, will brewers focus more on premium beers? After all, if drinkers less, they will have the money and possibly the inclination to buy better, more expensive beer. Time — and markets — will tell.
Albrecht continues:
Customers switch to Ozempic from Cheetos because Ozempic is the lower-cost way to achieve the customer’s goals. For example, Ozempic and Cheetos may both eliminate hunger, but Ozempic also does that without the other side effects of eating too much. Now, with the new drug, the consumer can become/stay healthy. There is more value-added, as far as consumers are concerned.
Thinking in terms of real resources instead of dollars, the inputs that were being used to produce Cheetos (workers’ time, corn meal, and whatever that orange powder is) are freed up for other producers to use. On the flip side, resources used for Ozempic are bid away from others. It is a complex system of interlaced markets, which prices help coordinate…
What is the net effect on business? What happens to GDP or gross value added? It is safe to say that the innovation of the drug allows people to do more with less, just like innovation in general.
As a general rule, if you want to know whether something will “help the economy,” you should ask, will this change make it less costly to produce value for people? Our ability to produce stuff is what holds us back. Our demands can never be fully suppressed. Scarcity is the constraint, not desires.
Technological advancement and supply are core drivers of GDP and economic growth, outweighing the role of demand (with possible exceptions in the depths of a recession). As technology improves, it boosts industries’ productivity, leading to increased output. Therefore, focusing on technological development and efficient supply mechanisms is crucial for sustained economic growth.
A few days ago, I joked with some friends that saying Ozempic hurts business is like saying lab-grown kidneys would hurt business. After all, people would need to spend less money on dialysis, which is a huge expense! Funny enough, Arpit Gupta just tweeted about a new drug that seems to help kidney patients, thereby harming dialysis companies.
Because kidney treatment does not sound like “demand suppressants,” no readers will think this technological advancement will harm business. But it has the same effect as Ozempic. Both medical improvements allow consumers to achieve their goals more easily than they could before.
Oh. And that drug that helps kidney patients? Ozempic.
So let us cheer on technological advancements without any guilt about what happens “to business.” Markets adjust. Resources get reallocation. In the end, we can make more stuff with less. Technological progress go brrr!
Even if some of the excitement over these drugs is overdone, they sound a lot like they are another example of the human flourishing created by the combination of our ingenuity and a market economy. And, if these treatments can also keep the nanny state at bay, they are a win for freedom too.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 140th episode, David was joined by E.J. Antoni of the Heritage Foundation, discuss how not all taxes are created equal in their impact or popularity.
No Free Lunch
Earlier this year, David Bahnsen launched a new six-part digital video series, No Free Lunch, here on National Review Online. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy . . .
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson, and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
The Capital Matters week that was . . .
Economics
Casey Mulligan & Tomas Philipson:
To echo an earlier sentiment of Lord Kelvin, when the Biden administration “does not measure, its knowledge is meager and unsatisfactory.” Payroll employment is a particularly incomplete metric right now because it excludes worker productivity and what is happening in the nonmarket sector — where children, students, and retirees are particularly active. Real GDP captures market productivity and market transactions but excludes nonmarket activity. Contrary to these metrics, and more consistent with most Americans’ sour opinions, we find that broader evidence suggests that living standards have fallen a cumulative $12 trillion from the start of 2020 to the end of 2022:
Antitrust
A closer look at merger and acquisition activities clarifies why permissive competition policies are essential for a thriving digital economy. As erstwhile start-ups grow, they often tend to lose their earlier innovativeness. Acquiring new start-ups can help larger companies develop new business models and technologies and remain on the cutting edge despite their larger size. Furthermore, while some start-up founders dream of creating the next Google or Facebook, the goal for many is to grow their company, sell it at a high price, and then launch new ventures. In a permissive regulatory environment, competing bids from tech companies and venture-capital firms drive up the valuation of start-ups. This lucrative exit option attracts more entrepreneurs, contributing to the creation of new start-ups and a more dynamic tech ecosystem . . .
Electric Vehicles
And then there are electric vehicles (EVs), the allegedly “clean cars” that are meant to accelerate the West’s move away from dependence on unreliable resource suppliers. It’s no secret that there are some question marks about that, primarily because of China’s domination of the EV supply chain, and certain metals being in, so to speak, the wrong place. Efforts are being made to break away from that dependence, but what happens before that happy moment? . . .
China
Overall, Nathaniel Taplin, the author of the Journal’s piece, thinks that one way or another, China “may well” avoid a “systemic financial crackup in 2023 and early 2024”. Maybe. An authoritarian state is better placed to “encourage” financial players to do their part to keep the situation under control. China’s economy is heavily distorted by the actions of an activist state. It shouldn’t be impossible (for now) to distort that economy still further in the interests of stability.
We’ll see.
China has an economy that isn’t quite a command economy and isn’t quite a market economy. It also isn’t a mixed economy, or at least it isn’t what people normally mean by that term, i.e., a mostly market economy with heavy regulation and a welfare state. Many of China’s largest firms are state-owned, and even nonstate firms commonly have Communist Party minders within them to make sure they don’t run afoul of the regime. The line between the private sector and public sector is often nonexistent, and Xi Jinping has been cracking down on successful business sectors lest they become too powerful in society and challenge his authority.
China’s economy has nonetheless grown at a rapid rate in the past few decades, and it is now the world’s second-largest. So how was there such rapid growth?
Fiscal Policy
The Congressional Budget Office published its last monthly report for the 2023 fiscal year, and it found that the 2023 deficit was $1.7 trillion. The real deficit, however, was about $2 trillion . . .
When it comes to determining representation in Congress, population — both gains and losses — matter. That’s why the three largest “blue states” — California, New York, and Illinois, which, between 2010 and 2020, together lost a total of 1.1 million residents, or more than all other states combined — each lost one seat in Congress. Fast-growing Texas and Florida each gained two.
But those same blue states were also protected from what should logically be another side effect of population loss: a reduction in federal grants, the annual waves of aid distributed for everything from public assistance to public education . . .
Regulation
Following the collapse of Silicon Valley Bank and Signature Bank in March, the Federal Deposit Insurance Corporation (FDIC) released a paper outlining various ways to reform the current system of deposit insurance. Most of its suggestions amounted to expanding the level of deposit insurance. This is a mistake that Congress should avoid. It would encourage risky bank lending and politically motivated regulation . . .
Congress created the CFPB in 2010 as part of the Dodd-Frank Act, which was a regulatory-reform bill meant to prevent the financial disaster of 2007-2009 from repeating.
Dodd-Frank created the CFPB as an independent agency tasked with protecting the best interests of consumers in financial markets. But, unlike other agencies, Congress ceded the power of budget oversight to the Federal Reserve up to an inflation-adjusted capped amount. As such, Congress has limited oversight of the CFPB . . .
Employment
I wrote a while ago about the misconception that people in the olden days got married very young. Research shows that, at least in Western Europe and the United States, age of first marriage for women is roughly U-shaped if plotted on a graph between 1800 and today. Today’s age of first marriage is unusually high, but the age of first marriage for women in the 1960s was unusually low, and it shouldn’t be considered a standard to which society must return.
In light of Claudia Goldin’s winning the Nobel Prize in economics, it’s worth noting that female labor-force participation follows the same U-shaped pattern . . .
Unions
Missouri Republican senator Josh Hawley made headlines recently for walking the picket line with striking United Auto Workers members. But Hawley is showing support for left-wing unions in more than just photo ops. In two recent radio interviews in Missouri, Hawley has said he no longer supports right-to-work laws. Given his state’s history with right-to-work, Hawley’s abandonment of the conservative position on this issue is troubling . . .
Capitalism (and Its Critics)
In the September 11 issue of National Review, I reviewed Sohrab Ahmari’s book, Tyranny, Inc. You can read my review here. I focused on how Ahmari’s narrative does not align with the average worker’s experience and how it runs contrary to the way economists think about the nature of firms and labor markets . . .
Energy
With Iran-backed Hamas attacking Israel, and with Russia still at war with Ukraine, this needs to change. Higher oil prices increase revenues for Iran and Russia, giving these countries more funds for aggression.
Biden can use these new wars to announce that he has changed his policies on U.S. domestic oil production. The Democratic policy is a fragile coalition of green environmentalists and blue-collar workers. Biden has been siding with the greens over the blues, but the attacks in Israel give him a reason to change.
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