It is a rare day when Hillary Clinton has not provided convincing evidence that she is unsuited for the White House. Friday she did not disappoint. The occasion was Mrs. Clinton’s decision to weigh in on the faux crisis stirred up over the pricing of EpiPens. Apparently, Mrs. Clinton was so exercised that she courageously performed a ritual denunciation “[calling] out drug companies for outrageous and unjustified pricing practices”. See her website.
As usual, Mrs. Clinton has a “plan” to deal with the situation. This one, outlined on her web site, is a treasure trove of progressive ignorance in which more bureaucracy saves the day. The plan would establish a consumer oversight panel “charged with protecting consumers from outlier price increases.” It would determine these “unjustified, outlier price increase[s]” based on (1) the trajectory of the price increase, (2) the cost of production, and (3) the relative value to patients.
Needless to say, the all-knowing panel would be staffed and advised by agency “experts” and consumer groups.
After fact-finding we go on to the enforcement phase. Here below are three “enforcement tools” emphasized in the Clinton plan.
- Making alternatives available and increasing competition
- Emergency importation of safe treatments
- Penalties for “unjustified price increases”
Let’s take them one at a time. And just for laughs, let’s pretend that the people who proved to be utterly incapable of launching the Obamacare website on time for a mere $600 million can figure out drug production costs at the drop of a hat in order to deal with some drug price “emergency”. And let’s not forget they are going to find “relative value to patients” presumably after they figure out what that is supposed to mean.
So here we go.
Enforcement Measure 1: Making alternatives available and increasing competition.
Anyone who has taken freshman economics (and passed) is well aware that vigorous competition and attendant substitution effects are among the default assumptions of market economies. But vigorous competition depends, in part, on easy entry and exit into the market. That can be problematic in the U.S. because there is a bottleneck otherwise known as the Food and Drug Administration (FDA).
The FDA presents a number of problems. First, it is notoriously slow when it comes to approving new drugs and generics, thus restricting competition and raising costs. Second, the FDA like all government agencies is subject to regulatory capture. Why should we assume that Hillary Clinton’s committee of “experts” would not be subject to the same phenomenon? It should be obvious that the FDA and similar agencies are not the solution—they are the problem.
Measure 2: Emergency Importation of Safe Treatments
Once again we have what should be a normal market process being treated as an “Emergency” measure. Why shouldn’t safe treatments be traded across borders as a matter of routine? Well for one, see regulatory capture in the preceding paragraph. The reason why drug importation is not routine is because government restricts it. And at the very least, pharmaceutical companies cheer the restrictions on because the effect is to reduce supply and increase prices.
For classical liberals, Free Trade across borders is a norm of free markets. Not so for restrictionists like Mrs. Clinton. They assert that trade is at best a zero-sum if not a minus-sum game, despite the mountains of evidence to the contrary. And so they restrict trade, tax consumers and protect favored constituencies. This holds true whether the product is autos or drugs. Mrs. Clinton’s way of thinking is the problem, not the solution.
Measure 3: Penalties for “unjustified” price increases.
This is Mrs. Clinton’s de facto price control board. Price controls of this type represent the most effective way to create product shortages and price spikes. In the process it discourages innovation and leads to thriving black markets. Anyone who doubts this should have a wonderful time living in Venezuela.
As Monty Python used to say: And now for something completely different. The enforcement measures discussed above are part of a much broader plan of breathtaking absurdity. Here I quote verbatim a sentence (actually a paragraph heading) from the plan that is in bold on the website. Because it is in bold I assume that the authors are quite proud of it and want to emphasize it. Ready? Here we go:
Require drug companies that benefit from taxpayers’ support to invest in research, not marketing or profits.
For its sheer lunacy, this one is truly for the record books. Hillary Clinton wants to prohibit drug companies from investing with the aim of making a profit. For the record let’s note the disclaimer that the prohibition applies only to drug companies that “benefit from taxpayer support”. Let’s also note that broadly speaking, the definition applies to 100% of drug companies.
Let’s consider for a moment why drug companies even exist. It is to make profits (technically to seek returns on invested capital). Let’s consider why drug companies engage in research. It is to develop drugs that they can sell and thereby earn profits (returns) from doing so.
Hillary Clinton, in the words of Barrack Obama, the most qualified person to seek the job, hasn’t quite figured this out yet.
So let’s sum up. Among the reasons why Hillary Clinton should be President is that she has a plan to “fix” the drug pricing “problem”. The solution is to restrict market entry, engage in free trade during emergencies only, institute a de facto price controls board, and put drug companies out of business.