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Home Publications Blogs Beat the Press Is Tyler Cowen a Protectionist?

Is Tyler Cowen a Protectionist?

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Sunday, 22 December 2013 08:44

It sure seems that way as he implies that greater patent and copyright protection are the wave of the future. He tells readers:

"The growing commitment of the American political system to intellectual-property protection and enforcement, like that in trade treaties, also hasn’t gained much explicit notice. This shift of priorities is likely to become more important as economies move toward creative production and information technology."

Already we lose close to $270 billion in patent rents on pharmaceuticals alone. This is roughly 1.6 percent of GDP or more than three times what the government spends on food stamps each year. This is money that is wasted paying more than free market price for drugs, which would almost invariably be cheap ($5-$10 per prescription) absent these government granted monopolies. 

Even worse, patents monopolies give huge incentives to drug companies to lie to the public about the safety and effectiveness of their drugs. They routinely conceal or misrepresent information, just as economic theory predicts. There are more efficient ways to finance the development of drugs, but apparently Cowen thinks the drug industry will be sufficiently powerful from having them be considered in public policy debates. (Thus far he has been right.)

Government granted patent monopolies also likely slow innovation in other areas as well, most notably in the high tech sector where companies like Apple and Samsung compete at least as much in the courtroom over patent suits as in the marketplace.

Comments (20)Add Comment
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written by AlanInAZ, December 22, 2013 9:58
Already we lose close to $270 billion in patent rents on pharmaceuticals alone.


It would be nice to link to something that shows how the drug patent rents was calculated. The combined net profits worldwide for the top 11 global drug companies in 2012 was $85 billion, far lower than $270 billion in claimed patent rents.
The cost to consumers in patent rents far exceed company profits
written by Dean, December 22, 2013 10:10
Drug companies spend huge amounts of money on marketing, lawsuits, political contributions and lobbying, and bribes all of which have nothing to do with providing information about their product and bringing it to consumers. These are costs associated with government granted monopolies. Without this protection, the vast majority of drugs would be available at $5-$10 a prescription, just like generics at the chain stores.
Creativity Essential for Productivity Spreads Through IP Patents to Physical Property
written by Last Mover, December 22, 2013 11:14

Looking forward to the day when physical property is treated like intellectual property. Imagine for example, purchasing a car with the following restrictions like that used by Microsoft to limit the use of Windows OS:

1) The first time you start the car, you get a message to activate the car over the internet or by phone within 30 days or it will never start again.

2) Every time you change the battery, spark plugs, muffler or anything else that exceeds the threshold on Microsoft's detection list, you get a reactivate message within 3 days to confirm you were not trying to steal the OS and put it on another car - or face shutdown of the car.

3) As long as you own the car you will be hounded regularly by Microsoft to verify it runs on Genuine Windows.

4) If you wreck the car and try to sell the OS, you must provide the dashboard with the software to prove the OS came from OEM matched to the OS that doesn't work anymore, then warn the buyer the OS must be installed in a new car that matches exactly the wrecked one, right down to the serial numbers.

Of course as the wave of the future, this is absolutely necessary to continue producing better cars, the same way better drugs were produced ... you know, over and over and over as they were modified slightly with useless "improvements" to qualify for a renewed patent whiling buying out the generic competition.

IP is coming for your cars America. Like your computer, you will only rent a car, not buy it, with a very tight leash around your neck on when and where to use it.
The cost to consumers in patent rents far exceed company profits
written by AlanInAZ, December 22, 2013 11:21
Much of what you say is true but my point is let's quantify. Where are the numbers attached to each of those items.

The vast majority of clinically important drugs are already available as generics and sold at Walmart, etc., but retail for more than $5-$10. ProPublica has a list of Medicare drugs sorted by cost and volume. They are almost all generics. Picking out a few special egregious cases of patent abuse does not add up to $270 billion annually.

Drugs are about 10% of health care spending which is about 18% of GDP so drugs total about 1.8% of GDP. Your claim of 1.6% of GDP saved means drug costs (including R&D and trials transferred to the government in your system) would go to almost zero. Doesn't seem credible.


Easy target
written by Donald Mallard, December 22, 2013 11:43
Yes, liberals don't get patents. With Phil Robertson of Duck Dynasty in the news as a staunch conservative and "self-made" millionaire railing against welfare, no one on the left has been rude enough to point out that his family his rich because a government granted patent monopoly allowed them to sell artificial duck calls to hunters above the market price without competition.
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written by Pat Trollman, December 22, 2013 11:56
Dr. Baker, patent law is redistributionist government policy against the wealthy. Without government confiscation expensive drugs would be the intellectual property of their inventors forever, and there would never be generics. If the government announced that it was going to take Warren Buffet's assests after 17 years would that interfering with the market to help Warren Buffet, because he gets to keep his own property until a time limit expires?
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written by Tyler Cowen, December 22, 2013 3:05
Come on Dean, learn how to read. "implies"? I wrote clearly in the column that I don't approve of all of these policy actions. And I have written quite a bit on IP elsewhere, as a quick resort to Google would indicate.
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written by liberal, December 22, 2013 4:32
Before I saw TC's comment, I was thinking "Wait, Dean seems to be saying that TC is saying 'ought', but the quoted text only implies 'is'."

Apart from that, Dean wrote, Already we lose close to $270 billion in patent rents on pharmaceuticals alone. Agreed; but it's peanuts compared to how much we lose in land rents.
"Implies" Was the Right Word
written by Dean, December 22, 2013 4:34
Tyler,

if we got rid of patent and copyright protection tomorrow then intellectual-property protection and enforcement would not become increasing important as you assert. Such property would not exist.

If we move in the direction of weaker protections, which is a possibility given the position of many countries, then there is no reason to believe that intellectual property issues will become more important.

Your assertion indicates that you reject the possibility that these protections will weaken through time as a result of the inefficiencies they cause. Whether this means you think stronger protection is good is an open question, which is exactly what I said in the post.

FWIW, I have read some of the things you have written on IP, but certainly not all. In any case, it is unreasonable to think that NYT readers are familiar with Tyler Cowen's collected works on IP. Perhaps you might try learning how to write.
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written by AlanInAZ, December 22, 2013 6:10
Spending on branded pharmaceuticals in the US was $230 billion in 2012 for 16% of all prescriptions. Generics account for 84% of prescriptions and spending totaled $95 billion. Assuming the branded drugs are sold at the same average price as the existing generics results in a gross savings of about $212 billion. Research and testing activities now inside the drug companies would be transferred to government at some cost, say $40 billion. That gives a net savings of $172 billion, not $270 billion.

Perhaps you can make a case for higher future savings if some must have at any price blockbuster drugs come along, but right now I don't see the $270 billion saved.

sources
written by Squeezed Turnip, December 22, 2013 7:31
alan, what are your sources? the numbers seem a bit off.
http://en.m.wikipedia.org/wiki...ted_States
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written by AlanInAZ, December 22, 2013 8:25
@squeezed turnip

I did some research this afternoon on total drug spending and found several studies. The linked article summarizes 2012 data. Branded drug sales declined for the first time in 2012 because of the growth of generics. The savings are potentially big but I don't think as big as Dean Baker claims. In fact, I think they will really be smaller than my estimate.

In addition, I don't like the idea of government control over the direction of all drug research. I believe there can be a great deal of organizational corruption not directly related to corporate profits. I would prefer a major revision of the patent system, not its elimination.


http://www.pharmacytimes.com/n...ed-in-2012
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written by AlanInAZ, December 22, 2013 8:50
@squeezed turnip

One irony of this story is that the growth of generics is forcing drug companies to become more desperate in promoting the few new drugs they have and pumping up their prices to even more ridiculous levels.
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written by watermelonpunch, December 22, 2013 9:47
written by Pat Trollman, December 22, 2013 12:56
Dr. Baker, patent law is redistributionist government policy against the wealthy. Without government confiscation expensive drugs would be the intellectual property of their inventors forever


HUH???
Without government granting the right to intellectual property - there would be no rights to intellectual property at all, let alone forever.
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written by watermelonpunch, December 22, 2013 10:06
written by Dean, December 22, 2013 5:34
FWIW, I have read some of the things you have written on IP, but certainly not all. In any case, it is unreasonable to think that NYT readers are familiar with Tyler Cowen's collected works on IP.


FWIW, I'm not really a regular NYT reader, and I'm not at all familiar with the collected works of Tyler Cowen.

Not that anyone cares, but point is, it probably is unreasonable to think the average NYT reader is either.
Desperate as a Seller? Just Raise Your Price and You'll Be Fine
written by Last Mover, December 23, 2013 3:48

@AlanInAZ
One irony of this story is that the growth of generics is forcing drug companies to become more desperate in promoting the few new drugs they have and pumping up their prices to even more ridiculous levels.


Can't let this one go. Econ 101. Big Pharma does not "pump up" its prices because it is "desparate", anymore than labor today "pumps up its wages" because it is desparate.

Sellers and buyers do not intentionally leave money on the table, period. What, you think when sellers get desparate for losing sales to competitive alternatives like generics, they charge even more to make up up in revenue for what they lost in sales quantities?

If fact, Dean Baker just had a piece on poor buyers of brand drugs, where the effective price paid out of pocket by the customer was kept low by bribing charities to pay part or all of it and keep a lock on insurers and taxpayers to pay the rest of it.

So reducing effective price paid is also an example of never leaving money on the table - by an enormously powerful monopoly in this case to capture evey dime available of consumer surplus left under the demand curve.

Poor babies. Soon Big Pharma will have to yet again double the price of what few branded drugs are left given all the generic "competition", just to give itself the necessary incentive to create even more of them.
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written by watermelonpunch, December 24, 2013 12:24
I think another argument can be made against the idea that big pharma needs to raise it's prices to stay in business against generics...
That if they can't compete in a fair market in a humane way in the business of public health, maybe they don't belong in business at all.
Maybe they should just give it up, and let we the people pay less by funding a fair system of research & development. And allow competent businesses who know how to run a company, to produce & dispense.
Funding Drug Research
written by Kenneth Almquist, December 24, 2013 10:06
I hadn't seen Dean Baker's paper on alternate ways of funding drug research, probably because I didn't pay much attention to healthcare policy until the 2008 election. If you haven't seen it, it's worth a look. http://www.cepr.net/index.php/...the-issues
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written by AlanInAZ, December 24, 2013 11:45
The CMS projects that
spending on prescription drugs will rise to $519.8 billion by 2013


That estimate from Dean Baker's 2004 paper is only wrong by 60%. Branded drug sales in 2012 were $230 billion and all prescription drugs were $325 billion.
wasting money
written by djb, December 26, 2013 1:07
when you give money to the rich it is not considered a waste

only when you give money to poor and middle class is it a waste


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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