Thursday, April 14, 2016

Why Big Pharma isn't Ripping you Off

A liberal friend of mine posted this video, instead of rebutting him I attempted to get through to the core of its liberal audience. I tried to be attentive to liberal values and language, considering Jonathan Haidt and Scott Alexander's advice concerning moral foundations and tribal signals (see #7)

Why doesn't someone just produce a competitor? 
Water is a good example of where markets don't produce competitors because of market failure. The same with a lot of infrastructure. You just can't compete when there's only one set of pipes, and several competing sets of pipes, most of which won't be producing anything just isn't realistic. So the outcomes of this market failure ends up being severely unjust. 
But on the other hand... Toilet paper is a terrible example. Why don't I have to pay 20% of my income for toilet paper? Why isn't gasoline twice as high as it is? Nobody has to fix the price of my groceries either. Even though these things are "needs" they stay accessible because someone else would sell it for cheaper if they became too expensive. 
So what about drugs? Drug patents exist with the explicit motive of making drugs more expensive. It's not a secret, it's in the economics textbook, it is stated by economic policy makers. 
But it's not just because governments are in the pockets of drug companies. The reasoning is that if a drug is expensive to invent, but easy to replicate, a lot of drugs wouldn't be profitable to invent because their profits would immediately be competed away. Government patents are sometimes a fair solution to a difficult problem. But then price fixing undermines exactly what's trying to be accomplished with the patent.

I might not like how expensive some drugs are, but I'm glad they exist for some people, and I'm glad that after a while they'll become more widely available when the patent expires. I care about people getting what they need to stay alive, regardless of whether it's through profits or greed. I'm not trying to help or hurt the rich. I'm trying to help the sick. None of that can happen if the drug never exists in the first place 
Daraprim is an interesting example of an unpatented drug where profits aren't being competed away. Why? The answer IS complicated, and I encourage anyone to look into it (maybe here:
Remember, "Because greed", is not a very complicated or intelligent story. It is not a good answer when prices go down because of greed too. Consider: every wage paid above minimum wage is because of greed as well. In a country where 2-4% of the population makes minimum wage, and median wage is $50,000, that's a lot of money being paid to ordinary people with no legal obligation to do so. Why? Because of greed. 
So I advocate a smarter form of liberalism; one that understands why markets work sometimes and under what conditions they fail. The economics textbook is written mostly by leftists. Full honestly here: popular liberal anti-market biases are as bad as anything coming out of the conservative anti-science crowd. But maybe with all the open-mind talk of the leftist people, there's some chance of a more intelligent discussion. 
I work for a Starbucks store, not big pharma.

Why is big pharma ripping you off? The important question is why doesn't every other industry rip you off even though they have the freedom to set their own prices too.