By Arnold Kling
If I were to attempt to practice medicine without a license, I could be prosecuted. On the other hand, there is nothing stopping a doctor from pronouncing himself an economic expert and recommending price controls. In today’s Washington Post, physician Marc Siegel writes,
Price controls, which the Bush administration opposes, would help the Medicare system gain lower drug prices, but why stop there? Congress should also change the laws that prohibit the importation of prescription drugs from other countries, where they are less expensive.
This is true, but in the same way that stealing cars and chopping them up for the parts puts downward pressure on the prices for auto parts in your area. Not having to actually manufacture the parts cuts down on a lot of overhead…
This is what’s known as the Free Rider Problem. We have a free market that pays for drugs to be developed. Other countries use their legal and economic power to force the price of the drugs their citizens consume down below the average cost of producing the drug, thus appropriating the benefits of the research without paying for it.
Siegel mentions the issue of research and development for drugs, only to change the subject to drug company advertising. This is a common tactic among those who want to rein in the drug industry. In fact, as ‘Jane Galt’ points out, “in 1999 the Pharmaceutical industry spent $1.6 billion on consumer advertising.” Meanwhile, according to the chart on page three of this report, drug industry R&D expenditures were close to $25 billion in 1999.
Ironically, another article in the Post mentions this NBER working paper by Frank Lichtenberg. Lichtenberg says that his results show that 40 percent of the increase in longevity between 1986 and 2000 is accounted for by new drug discoveries.
For Discussion. Is hostility toward the private sector higher for pharmaceutical companies than for other industries? If so, is there economic justification?