The "Free Traders" are Against Free Trade: Prescription Drugs

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Tuesday, 25 March 2014 04:52

The NYT had a good column on the government's efforts to prevent people from buying lower cost drugs from foreign countries. The column makes the point that the Food and Drug Administration has misleadingly tried to claim that the issue with foreign drugs is one of safety when it really is just pharmaceutical industry profits. If people know that they can buy drugs for prices that are often less than one fifth the price in the United States, they will be unlikely to buy the drugs in the United States.

The government has therefore tried to prevent lower cost drugs from entering the country. It also uses trade agreements like the Transatlantic Trade and Investment Partnership to raise drug prices in other countries. This both increases industry profits overseas and removes a potential source of low cost drugs.

Low cost drugs do undermine the usefulness of patent protection as a way to finance research and development, just as black markets in blue jeans undermined central planning in the Soviet Union. Ordinarily economists look to mechanisms that are consistent with markets rather than ones that depend on stifling markets. For some reason economists have shown little interest in any of the alternatives to patents, such as public funding through entities like the NIH, as ways to finance prescription drug research. Since these alternatives could bring patent protected drug prices down by 80-90 percent, they would offer enormous economic gains, in addition to the obvious benefits to public health.