Tuesday, August 18, 2009

Big Pharma and Cats that Bark

Megan McArdle responds to a couple of questions from comments.

I feel that we are really getting somewhere in this discussion. I have two basic questions here. The first is this: if Megan thinks the Dutch system is fine apart from the price controls on drugs, why don't we adopt the Dutch system but not the price controls on drugs? If Megan's problem with the House insurance reform bill is not the actual House insurance reform bill, but the prospect that it will ultimately lead to price controls on drugs, why doesn't she back the House insurance reform bill and insist that it not adopt price controls on drugs?

The second question I have is this: if the House health insurance reform bill is so bad for drug innovation and research by pharmaceuticals companies, why are the pharmaceuticals companies buying $12 million in ads promoting the House health insurance reform bill?

The answer to the first question is simple:  we can't.  The political logic of pharmaceutical price controls is nearly overwhelming.  You have a product that has a very low marginal cost and a very high fixed cost, which means that you can force them to provide it cheaply and eat the fixed costs if you have enough market power.  You've got program that is rapidly turning into the sucking chest wound of the US budget.  And you've got a big line item supplied by companies that are unpopular--unlike the other major players in the system, like doctors, nurses, assorted health care workers, and the local hospital.  This is why most of Europe has turned to some form of price controls.

...in this case, I think it holds:  price controls are a feature of national health insurance schemes, just as log-rolling is a feature of democracy.  We might hold out for a while.  But eventually, we'd have a combination of populists in office and a budget problem, and the pharma profits would go.

As for the second question, this is where I realize that liberals often really just do not grok what libertarians are about.  For them, this is a battle between people who like health care companies, and want to defend them, and people who like the government.  But I don't care about the pharmaceutical companies qua pharmaceutical companies.  The pharmaceutical companies are interested in what is good for pharmaceutical companies.  I am interest in what is good for society.

I am not under the delusion that those are necessarily the same thing.  "What's good for General Motors is good for America" was a Great Society slogan, not a libertarian, or even a conservative one.  Right now, pharmaceutical companies spend a great deal of effort on innovation because they have to in order to survive.  But if survival means ditching the R&D labs and churning out low-cost copies of things they've already invented, then I'm pretty sure that's what they'll do.  To paraphrase Adam Smith, it is not to the benevolence of pharma that I look, but to its self interest.  In the current system, that self interest means inventing new drugs.


I'm not sure the cognitive gap between liberals and libertarians can be bridged.  At the very least, as long as they think of us as defending corporate interests, rather than defending a system that most often aligns corporate interests with ours, everything we say will continue to seem vaguely puzzling.

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