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Home Publications Blogs Beat the Press Pharmaceutical Companies Lead the Fight Against the Free Market

Pharmaceutical Companies Lead the Fight Against the Free Market

Tuesday, 29 January 2013 05:19

The NYT tells us that biotech firms want the government to prohibit pharmacists from giving patients generic substitutes for biological drugs. This is a great story for a couple of reasons.

First it is a great example of the sort of abuses that economic theory predicts would result from having the government grant patent monopolies. When companies call sell drugs for prices that are a hundred or even a thousand times their cost of production, we should expect that they will lie, cheat, and steal to expand their market. And the drug companies largely act exactly as economic theory, if not economists, predicts.

The other reason this is a great story is that it shows the complete indifference to free market principles held by big business. Are the folks who want to arrest pharmacists for substituting generics "market fundamentalists?"

Note that the sums of money involved in the industry swamp the chump change that many liberals fight over. The article cites data showing drug industry sales at $320 billion a year. They would be around one-tenth this amount without patent and other protections provided by the government, a difference of $290 billion. By comparison, the entire food stamp program cost $87 billion in 2012, less than one-third this amount. Federal spending on TANF is around $17 billion, less than one-tenth of this amount.

This is a great example of how the rich rig rules to get all the money. Then they let the loser liberals run around saying that we need the government to help the poor.


Addendum: Zev Arnold pointed out in his comment that I orginally had the number of beneficiaries (47 million) rather than the amount of spending for Food Stamps. 

Comments (15)Add Comment
Headline: Jack Booted Thugs Advance Nanny State Through Patent Regulation
written by Last Mover, January 29, 2013 5:47
So true. The traditional liberal-conservative distinction is so entrenched in the public mind, the media feeds off it like the truth of a flat or round earth.

The journalistic standard is to not report if the sun rises in the east and drug patents are necessary to incentivise drugs. If the sun rises in the west and drug patents are not necessary to incentivise drugs, then there better be some independent qualified sources to verify an important story, so neither is reported because Dean Baker and inhabitants of an earth turning backwards are not worth reporting.

Biotech firms blocking generics for brand names is no different than the Mafia of the old days forcing a protection racket onto captive customers. Both are a form of government power, explicit in the first case or implicit when the Mafia steps in to replace the absence of government.

Yet the media doesn't report this as a difference between nanny state liberals and nanny state jack booted thugs, because the latter are euphemized as "conservatives" who believe in "free markets" the same way the Mafia did.
written by Chris Engel, January 29, 2013 6:13
Headline: Jack Booted Thugs Advance Nanny State Through Patent Regulation

Last Mover


Imagine if we had some liberal interest groups who weren't pussies and came out like the NRA screaming about jack-booted monopolist thugs bossing around little small-business pharmacists.

Where are the modern populists in public policy to frame these insane stories of corporate greed promoting social ills in the tradition of the trust-busting Teddy Roosevelt and labor-theory-of-wealth-creation proponents like George Wallace?

How much longer can this really go on? seriously? Financial crisis leading to TARP, wimpy dodd-frank, wimpy tax policy against the rich, wimpy regulation, and all we have to show for it is near-deflation, a lost generation, and a culture poisoned by reality television and hollywood bimbology.

When do we reach a tipping point when the substantial portion of the population who pretends to be rich by believing in the failed things rich people push DROP the act and demand government step in to regulate, stimulate, and accomodate?
written by Chris Engel, January 29, 2013 6:17
Er, not sure why I wrote George Wallace instead of Henry Wallace.

Freudian slip. Somewhere inside of me I must be hoping the South will rise again :P

(disclaimer: no, i don't think that. it really was just a brainfart in the prior post)
written by liberal, January 29, 2013 7:45
This is a great example of how the rich rig rules to get all the money.

Yeah, but it's still relatively small compared to the biggest source of economic rents: land.
written by David, January 29, 2013 8:17
In Salon:

http://www.salon.com/2013/01/27/ bad_pharma_drug_research_riddled_with_half_truths_omiss
written by Jennifer, January 29, 2013 8:47
Thank you for the link, and for pointing out a more important problem, the issue of these companies gaming the system for profit. In the past ten years or so it has become increasingly clear that biotech companies are willing to do anything for a buck, regardless of the consequences. Even if you feel the patent system is legitimate and reasonable, the fact that these companies are willing to put patients lives at risk, repeatedly and without consideration, and without real punishment should be cause for concern and invesigation. Many people noted that Carmen Ortiz, the attorney prosecuting Aaron Swartz, was involved with several big pharma agreements that were quite favorable to the companies.
SNAP Spending
written by Zev Arnold, January 29, 2013 9:59
This is a bit of a tangent, but I noticed that you mentioned SNAP spending for 2012 as $47 billion. The most recent projection for 2012 spending I could find was from this CBO blog post. At this time, CBO was projecting SNAP spending of over $80 billion. There were 47 million participants though... simple statistic mix-up?

written by S.D. Jeffries, January 29, 2013 10:07
Threatening the pharmaceutical manufacturers with patent reform may be the perfect way to bring those companies to the table to negotiate drug prices for Medicare Part D. So far, however, the only way congress can envision cutting Medicare costs is to cut benefits and simply shifting the costs to the elderly while cutting their Social Security income at the same time.
probably small compared to a lot of other captured rents.
written by pete, January 29, 2013 10:12
Look at, as Dean likes to point out, AMA and SEIU getting monopoly rents from health care. Or oil and gas companies having the U.S. military protect their supplies. Regulatory capture is the name of the game. Buchanan got a nobel for pointing it out. Ayn Rand saved the worst circle of hell for collaborators. Here's how the politics work: somebody has a great idea, like reducing carbon emissions. Industries smell the money, and set up solar and wind companies to reap the profits. Or take Frankendodd...raises fixed costs of doing banking so that there will be only a few large banks. Unfortunately, there are many more examples of "good" ideas leading to wasted money than there are "good" ideas leading to efficient outcomes. Yet we persist in begging big daddy government to solve our problems. Repeating this is, of course, the definition of insanity.
written by Bumticker, January 29, 2013 10:35
The two most important lessons I learned in business school were 1/ through competition free markets create efficiencies and relentless push prices lower. 2/ if you want to make money find a way to separate your product from the competition and shield your operations from the pressures of the marketplace.
Some of the ways to separate your products from the marketplace are beneficial to society, i.e. create innovative products that did not previously exist. Some of the methods that are used are beneficial but can be abused, i.e. use patents to prevent competitors from operating in the same market. Some of the methods involve a level of deceit, i.e. use branding and advertising to convince your customers that your products are unique and that other competing products are inferior. Other methods are acknowledged as dishonest, i.e. market manipulation through unfair trade practices, but used in business to the fullest extent allowed by law.

I think this demonstrates most of the good and the bad about the American system and shouldn’t surprise anyone.
Concern Trolls Want You to Think a Price Cannot Be Put on Health Care
written by Last Mover, January 29, 2013 11:09
Also notice how concern trolls conveniently pop up on comment boards for this issue as with the NYT article, going on about how generics can't be trusted as imperfect substitutes or because they're made under conditions without sufficient oversight by FDA and the like, or personal scare stories and veiled threats of outright counterfeit drugs that could result in serious harm. Of course to be saved from these lies the rent extortion payment can run into tens of thousands per year.

Not suprisingly, when the issue turns to other forms of government intervention in health care besides drug patents, concern trolls swarm again but in the opposite direction, warning consumers of government provided health care that prevents more "choice" from the private sector at stratospheric price increases.

So for patented drugs, concern trolls are concerned that consumers are too ignorant and incompetent to make choices between brand and generic drugs that should be left to the government for safety reasons. But for other forms of health care including insurance, concern trolls are concerned that consumers should control the choices, not government.

So fork it over for the concern trolls. Whether to Big Pharma, Big Health or Big Government, it's a choice that proves no price is too high for health care.
salon link
written by David, January 29, 2013 1:52
since my phone botched the link once again, I'm reposting this link to this excellent article on abuses by big Pharma. Patents are certainly a big factor in the inefficiency of the Rx drug market.

How about commending the press when they get it right?
written by Perplexed, January 29, 2013 4:35
-"First it is a great example of the sort of abuses that economic theory predicts would result from having the government grant patent monopolies....

This is a great example of how the rich rig rules to get all the money."

Its not all profit though, these companies have important, powerful accomplices that need to be rewarded:

written by DM, January 29, 2013 4:50
Really enjoy your columns Mr. Baker and appreciative of the work you do highlighting and dissecting mainstream reporter. I look forward to reading your book and thank you for providing it for free as a service to the public. Regards.
Big Gov semantics
written by JP, January 30, 2013 7:13
When our elected officials pass laws prohibiting the VA from soliciting competitive drug prices, then it is hard for me to call them Big Government. They are lackeys of the real power and wealth. We, who have bought into the myth, get to pay for the weakness of our Little Government. You could argue that our Congress is just the intermediary,the front, of the real Big Government.

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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.