If you want to see an economist get really angry, suggest imposing a 20 percent temporary tariff on imported steel, as President Bush did in 2002. He can quickly produce the charts showing how this will lead to an inefficient outcome.
If you want to see an economist get really confused, ask him how the story is different with a drug patent that allows a company to charge a price that is several thousand percent above the free market price. Of course you can use the exact same chart to show the inefficiencies, except with the drug patent the scale would be two orders of magnitude larger.
But economists don't get concerned for some reason about drugs selling for above market prices, even though the gap between the patent-protected prices and the free market prices is now running into the hundreds of billions annually. They will inevitably mumble about how we need patents to provide incentives to develop new drugs, as though they could not conceive of any other mechanism.
This is why this little piece on the potential use of vitamin C as a cancer treatment is so interesting. It refers to some promising results from scientists at the University of Kansas then tells readers:
"One potential hurdle is that pharmaceutical companies are unlikely to fund trials of intravenous vitamin C because there is no ability to patent natural products."
The conclusion is then that the government will have to finance large-scale clinical trials to determine the effectiveness of vitamin C as a cancer treatment.
The specifics of the vitamin C case are fascinating in themselves, but what is more striking is what this says about our division of research responsibilities between the public and private sector. The assumption of patent supporters is that somehow Pfizer, Merck, and the rest are hugely more efficient when they do patent supported research than when research is done through other funding mechanisms. (The issue here is patent support, not public versus private, since the government could pay Pfizer and Merck to do research.)
So patent supporters believe that we can have efficient public funding through the National Institutes of Health (NIH) for basic research. (NIH gets $30 billion a year, which everyone seems to agree is money very well spent.) And they recognize that occasionally it will be necessary to do research on non-patentable products because these may provide effective treatments or cures. But somehow it is efficient for the government to grant patent monopolies that both lock up the product and also many important research findings for decades.
It would be interesting to see a theory of how science develops that would support the efficient patent argument. On its face, it is hard to see anything there besides drug money.
Thanks to Jon Schwartz for calling this one to my attention.