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What Drug Dealers Can Learn From Walgreens, with Stephen J. Dubner

Author Stephen J. Dubner analyzes the economics of drug dealing in the most Freakonomics way possible, comparing the capitalist tendencies of Walgreens with your friendly neighborhood gang of crack dealers.

Stephen J. Dubner: In our first book Freakonomics we wrote about the economics of a crack-selling gang in Chicago. And it was really fun and interesting because we have these assumptions that if you sell drugs, you become a millionaire. And it turns out that the average criminal, drug-selling gang is set up kind of like a franchise, kind of like a McDonald’s really. And that if you own 10 McDonald’s, you do pretty well; you make good money. And if you’re a manager at one you do okay. But if you’re an employee at one, you know, you make very little money. And it turns out that’s the way a drug gang works. That the vast majority of the profits are concentrated at the top. And so we made the argument that, you know, the average crack dealer isn’t, you know, they’re not very well off and the average crack dealer lives at home with mom and often has a second job at a place like McDonald’s. Well if crack dealers could take lessons from their legitimate drug-selling counterparts, they could do a lot better. So here’s what I mean by that.

Generic drugs, we think — most people seem to think because they’re generic, they’re priced the same. That seems to be kind of the way we think it should work. But as it turns out if you look at the pricing data on generic drugs across different companies, retailers, that sell it, there are instances where I could go to a Walgreens and buy a bottle of, you know, pills, generic — let’s say a statin — and it would cost about $110. And the same, exact bottle of pills at a different place like a Sam’s Club or a Costco would cost literally about $10 or $15. So a markup of like 1,000 percent for the same product that is sold by two companies that look pretty similar and that are generic, moreover. So when you look at this data it’s just shocking. You think how can this possibly be? Not only how can they get away with it? I mean anybody can charge anything they want. Nobody has to buy it, but why would people buy it? And it turns out the reason is very simply that most people who get their, buy their prescriptions in a given place, especially a lot of older people who you get more drugs as you — you buy more drugs as you get older and you’re more on a kind of plan. They just kind of make the assumption that a generic pill is going to be priced the same from one to the next. But it turns out there’s massive, massive disparity in that.

So really, you know, Walgreens is way better at dealing drugs than drug dealers are if the goal is profit maximizing. And I think that even though the people who are just selling at the counter at Walgreens, they are I’m sure not making very much money. You know the shareholders of Walgreens appreciate that a firm like Walgreens is really good at dealing drugs and profit maximizing. So from an economic perspective you have to applaud them. From a fairness perspective, you have to decry them. On the other hand that’s what capitalism is about. It’s about, you know, caveat emptor, you are free to shop around. And if someone can take advantage of what’s called information asymmetry, right, people on different sides of a transaction — I know a lot more about this price than you do — they can exploit it. That’s what’s good about the digital revolution is it makes information asymmetry much harder to maintain. So I don’t know if such an app exists, but a good one would be a very, very, very, very simple price comparison for generic drugs. And it would presumably, off the bat, save, you know, elderly Medicare patients billions of dollars within a month. Of course it would cut into the corporate profits of those shareholders, but that would work.

Author Stephen J. Dubner analyzes the economics of drug dealing in the most Freakonomics way possible, comparing the capitalist tendencies of Walgreens with your friendly neighborhood gang of crack dealers. He also explains how drug stores like Walgreens are able to get away with marking up their generic drugs as much as 1,000 percent, exploiting informational asymmetry to rip off those who don't know any better. Dubner's latest book, co-authored by Steven D. Levitt, is called When to Rob a Bank.

The “new normal” paradox: What COVID-19 has revealed about higher education

Higher education faces challenges that are unlike any other industry. What path will ASU, and universities like ASU, take in a post-COVID world?

Photo: Luis Robayo/AFP via Getty Images
Sponsored by Charles Koch Foundation
  • Everywhere you turn, the idea that coronavirus has brought on a "new normal" is present and true. But for higher education, COVID-19 exposes a long list of pernicious old problems more than it presents new problems.
  • It was widely known, yet ignored, that digital instruction must be embraced. When combined with traditional, in-person teaching, it can enhance student learning outcomes at scale.
  • COVID-19 has forced institutions to understand that far too many higher education outcomes are determined by a student's family income, and in the context of COVID-19 this means that lower-income students, first-generation students and students of color will be disproportionately afflicted.
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What if Middle-earth was in Pakistan?

Iranian Tolkien scholar finds intriguing parallels between subcontinental geography and famous map of Middle-earth.

Image: Mohammad Reza Kamali, reproduced with kind permission
Strange Maps
  • J.R.R. Tolkien hinted that his stories are set in a really ancient version of Europe.
  • But a fantasy realm can be inspired by a variety of places; and perhaps so is Tolkien's world.
  • These intriguing similarities with Asian topography show that it may be time to 'decolonise' Middle-earth.
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Giant whale sharks have teeth on their eyeballs

The ocean's largest shark relies on vision more than previously believed.

Photo by Koichi Kamoshida/Getty Images
Surprising Science
  • Japanese researchers discovered that the whale shark has "tiny teeth"—dermal denticles—protecting its eyes from abrasion.
  • They also found the shark is able to retract its eyeball into the eye socket.
  • Their research confirms that this giant fish relies on vision more than previously believed.
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NASA releases first sounds ever captured on Mars

On Friday, NASA's InSight Mars lander captured and transmitted historic audio from the red planet.

NASA
Surprising Science
  • The audio captured by the lander is of Martian winds blowing at an estimated 10 to 15 mph.
  • It was taken by the InSight Mars lander, which is designed to help scientists learn more about the formation of rocky planets, and possibly discover liquid water on Mars.
  • Microphones are essentially an "extra sense" that scientists can use during experiments on other planets.
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A massive star has mysteriously vanished, confusing astronomers

A gigantic star makes off during an eight-year gap in observations.

Image source: ESO/L. Calçada
Surprising Science
  • The massive star in the Kinsman Dwarf Galaxy seems to have disappeared between 2011 and 2019.
  • It's likely that it erupted, but could it have collapsed into a black hole without a supernova?
  • Maybe it's still there, but much less luminous and/or covered by dust.

A "very massive star" in the Kinman Dwarf galaxy caught the attention of astronomers in the early years of the 2000s: It seemed to be reaching a late-ish chapter in its life story and offered a rare chance to observe the death of a large star in a region low in metallicity. However, by the time scientists had the chance to turn the European Southern Observatory's (ESO) Very Large Telescope (VLT) in Paranal, Chile back around to it in 2019 — it's not a slow-turner, just an in-demand device — it was utterly gone without a trace. But how?

The two leading theories about what happened are that either it's still there, still erupting its way through its death throes, with less luminosity and perhaps obscured by dust, or it just up and collapsed into a black hole without going through a supernova stage. "If true, this would be the first direct detection of such a monster star ending its life in this manner," says Andrew Allan of Trinity College Dublin, Ireland, leader of the observation team whose study is published in Monthly Notices of the Royal Astronomical Society.

So, em...

Between astronomers' last look in 2011 and 2019 is a large enough interval of time for something to happen. Not that 2001 (when it was first observed) or 2019 have much meaning, since we're always watching the past out there and the Kinman Dwarf Galaxy is 75 million light years away. We often think of cosmic events as slow-moving phenomena because so often their follow-on effects are massive and unfold to us over time. But things happen just as fast big as small. The number of things that happened in the first 10 millionth of a trillionth of a trillionth of a trillionth of a second after the Big Bang, for example, is insane.

In any event, the Kinsman Dwarf Galaxy, or PHL 293B, is far way, too far for astronomers to directly observe its stars. Their presence can be inferred from spectroscopic signatures — specifically, PHL 293B between 2001 and 2011 consistently featured strong signatures of hydrogen that indicated the presence of a massive "luminous blue variable" (LBV) star about 2.5 times more brilliant than our Sun. Astronomers suspect that some very large stars may spend their final years as LBVs.

Though LBVs are known to experience radical shifts in spectra and brightness, they reliably leave specific traces that help confirm their ongoing presence. In 2019 the hydrogen signatures, and such traces, were gone. Allan says, "It would be highly unusual for such a massive star to disappear without producing a bright supernova explosion."

The Kinsman Dwarf Galaxy, or PHL 293B, is one of the most metal-poor galaxies known. Explosive, massive, Wolf-Rayet stars are seldom seen in such environments — NASA refers to such stars as those that "live fast, die hard." Red supergiants are also rare to low Z environments. The now-missing star was looked to as a rare opportunity to observe a massive star's late stages in such an environment.

Celestial sleuthing

In August 2019, the team pointed the four eight-meter telescopes of ESO's ESPRESSO array simultaneously toward the LBV's former location: nothing. They also gave the VLT's X-shooter instrument a shot a few months later: also nothing.

Still pursuing the missing star, the scientists acquired access to older data for comparison to what they already felt they knew. "The ESO Science Archive Facility enabled us to find and use data of the same object obtained in 2002 and 2009," says Andrea Mehner, an ESO staff member who worked on the study. "The comparison of the 2002 high-resolution UVES spectra with our observations obtained in 2019 with ESO's newest high-resolution spectrograph ESPRESSO was especially revealing, from both an astronomical and an instrumentation point of view."

Examination of this data suggested that the LBV may have indeed been winding up to a grand final sometime after 2011.

Team member Jose Groh, also of Trinity College, says "We may have detected one of the most massive stars of the local Universe going gently into the night. Our discovery would not have been made without using the powerful ESO 8-meter telescopes, their unique instrumentation, and the prompt access to those capabilities following the recent agreement of Ireland to join ESO."

Combining the 2019 data with contemporaneous Hubble Space Telescope (HST) imagery leaves the authors of the reports with the sense that "the LBV was in an eruptive state at least between 2001 and 2011, which then ended, and may have been followed by a collapse into a massive BH without the production of an SN. This scenario is consistent with the available HST and ground-based photometry."

Or...

A star collapsing into a black hole without a supernova would be a rare event, and that argues against the idea. The paper also notes that we may simply have missed the star's supernova during the eight-year observation gap.

LBVs are known to be highly unstable, so the star dropping to a state of less luminosity or producing a dust cover would be much more in the realm of expected behavior.

Says the paper: "A combination of a slightly reduced luminosity and a thick dusty shell could result in the star being obscured. While the lack of variability between the 2009 and 2019 near-infrared continuum from our X-shooter spectra eliminates the possibility of formation of hot dust (⪆1500 K), mid-infrared observations are necessary to rule out a slowly expanding cooler dust shell."

The authors of the report are pretty confident the star experienced a dramatic eruption after 2011. Beyond that, though:

"Based on our observations and models, we suggest that PHL 293B hosted an LBV with an eruption that ended sometime after 2011. This could have been followed by
(1) a surviving star or
(2) a collapse of the LBV to a BH [black hole] without the production of a bright SN, but possibly with a weak transient."

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