Market Fail

Another failure of the market.

What infuriates me in cases like this is that I’m tired of the endless kneejerkery which blames this sort of thing on government everywhere and all the time. This is pretty clearly a failure of the market to meet a critical need, and is one of the reasons why we often need government intervention.

It makes me a little crazy that people think government is always and everywhere the wrong answer. Yes, government is dangerous. So is fire. The solution to the danger of fire is to be careful with it. The same principle applies to electricity, useful chemicals, police, armies, and other dangerous things like government regulation.

  • Dishman

    I’ll note that what turned this from a potential problem into a crisis was a regulatory action.

  • http://www.richwasp.com The Rich Wasp

    Dean, read this editorial by Ezekiel Emanuel about the problem. It was literally created by government manipulation of the market.

  • fruitylips

    The very idea that a prescription drug anything is a function of the free market is laughable.

    The paragraphs 8 & 9 of the above NYTimes article explains why.

  • Pillage Idiot

    Dean,

    Your posts and comments typically show great animosity to corporations and the free market. I have not followed closely enough to see if you have explained the underlying basis for this in a previous post.

    You typically present well-reasoned, detailed commentary. However, in this area your posts are just cryptic and caustic. I am a very strong proponent of free markets and I think it would be very informative to converse with your viewpoint.

    All evidence seems to indicate to me that government regulation is restraining the functioning of the market. If drug prices were allowed to rise in a free market I think supply and demand would quickly reach near equilibrium.

    I suspect you really don’t want poor children with leukemia to pay more than 25 cents for their life-saving medication. I also agree with that point of view and would love to see that reality. However, restrictions on the free market push us farther from that ideal, not closer. A better solution would be for you to become the next Jackson Pollock – sell art you can paint in an afternoon to someone who values it at $10,000,000 – and then you can charitably provide whatever need you think is greatest in our society.

    • http://www.deanesmay.com Dean Esmay

      Pillage: Are my comments cryptic, or is the problem that some people don’t like the idea that there is no such thing as a pure free market?

      I have no great animosity toward corporations. I note that their very existence is a government creation and that sustaining them requires continuous government support. Whenever I say this it seems to send some people into a frenzy, even though I think it’s indisputably true.

      The large publicly-traded corporations are pretty much an inversion of most everything Adam Smith wrote about the virtues of capitalism. That does not mean we should not have them; after all, these corporations produce many valuable effects (jobs and mass-produced products we need, for example) and we would never want to get rid of them. But they are like herds of cattle: useful, but potentially dangerous and in need of being watched.

      Corporations, in particular the large publicly-traded ones, are inherently amoral (not immoral, amoral) and will, as the automatons they are, always tend to put profit above all other considerations and, especially when publicly-traded, will often be corrupted by those who run them. I am not expressing animosity when I say these things. Individuals may also be untrustworthy, but the very design of large corporations makes corruption more likely, especially once they are owned by no one in particular.

      In this case, it seems to me that merely freeing the manufacturers to directly sell and charge whatever they want would not be sufficient, because it won’t do away with the problem of deeper-pocketed manufacturers squeezing out supply from companies running on smaller margins. Nor will it do away with the problem of manufacturers squeezing every possible dime out of insurers (including but not limited to Medicaid and Medicare).

      What would your proposed solution in this case be? For it would seem to me that a simple abolition of all regulations would result in none of the cheap drugs being available at all, and only the highly-profitable patent protected drugs would be available. Unless we abolish patent protection, which sounds pretty crazy. We could also, I suppose, abolish all safety regulations, but that doesn’t sound wise. I know what I would propose, but I’d like to know what you’d propose.

  • http://www.deanesmay.com Dean Esmay

    Dish: Which regulatory action caused dangerously impure drug manufacture?

    Rich Wasp: Excellent and informative link. It does not really explain dangerously slipshod manufacturing, but it’s a clear call for regulatory reform.

    Fruity: We almost certainly agree that any system which doesn’t allow patients to simply buy the drugs they need, and which forces sales at a loss, is broken. But I don’t think you can pin letting facilities deteriorate to the point of danger purely on prices; the correct action there would be to cease manufacturing the drug and explain that it is no longer profitable to do so because of current market conditions.

    Rich Wasp’s link points to one regulatory reform that is clearly neeeded: the selling and pricing mechanism is broken. On the other hand, a commenter over at this thread on The Moderate Voice (see comment by “STinMN”) notes that manufacturers of patent-protected (and thus wildly profitable) drugs are squeezing out raw material supplies generic drug manufacturers need–which would be an illustration of the age-old problem of deep-pocketed profit-seekers monopolizing a market and squeezing out less-deep-pocketed competitors, no?

  • fruitylips

    http://www.medpagetoday.com/HematologyOncology/Chemotherapy/31211

    Paragraph 5. They did not produce dangerously impure drugs and the batch the produced is being released having been determined to be of acceptable quality.

    When the price can’t fluctuate due to supply and demand, you’re not talking about anything to do with the free market (which comes from two government sourced: Medicare price fixing and tax breaks that lead to mass employer based private insurance).

    The government imposed barriers to entry into this market are huge, thus more not free market.

    They did exactly what you suggest, however. They had production problems and shut down.

    The issue is not someone stopping production, however. It is that no one else would bother to pick it up due it low prices and high barriers of entry (both largely government imposed).

  • http://www.richwasp.com The Rich Wasp

    Dean, the government price regulations have reduced competition and decreased supplies. I think the company who makes the drug needs to spend the money required to fix the problem. How are they going to recoup the cost of doing so? In the current regulatory enviroment, they aren’t.

  • http://www.deanesmay.com Dean Esmay

    I get an interesting sense of whiplash bouncing between the conversation here and over there; here I find myself arguing with people who point the blame at government action, there I find myself arguing with people who point the blame a monolithic entity called “pharma companies.”

    What is funny here is I think most people would wind up agreeing with each other on most of this if communication were better. I don’t think anyone other than a fringe wants the pharma industry destroyed. I don’t think anyone other than a fringe wants to simply dynamite all government action (and wouldn’t like it much if they did). So the real question should come down to what the most sensible regulatory reform would be to help the generic drug manufacturers stay in business so they can be reasonably free both of government interference and of monopolistic practices by the deep-pocketed companies that want to sell patented medicines exclusively.

    Although the conversation over there does remind me that I need to pin down this habit of snarking solely at the anti-government people.

  • http://www.deanesmay.com Dean Esmay

    (Amusing aside: I’m using Rich Wasp and Fruitylips’ links over there to point out what others are getting wrong. It’s useful to know the drugs weren’t actually tainted, for example.)

  • Dishman

    From here
    “The weekly cost for methotrexate injection (generic only) ranges from $6 to $25.”

    We’re not talking about a terribly expensive drug. I suspect that a lot of families that need it could easily find a way to pay for it if they had the option.

    Unfortunately, things seem to have gotten structured in such a way that the option has been removed.