Elizabeth Warren has floated a new statist idea– let’s get government into the business of making generic drugs!– and Megan McArdle does her usual fine job of demolishing the notion. Megan’s focus is mostly on the lack of alternatives to capitalism. It is perennially difficult in most places of finding government-sponsored entities or agencies that actually do a good job while eliminating the nasty ol’ profit motive. The problem there isn’t that the claimed benefits don’t exist, it’s that they’re much more than completely washed out by the costs imposed by the inefficiency, cronyism, bureaucracy and lack of price discovery pressure that come along with a lack of competition. Government theoretically has the same or greater power to punish inefficiency than capitalism does, but in practice the executive Deep-State swamp-dwellers all seem very cozy with one another, and lower level bureaucrats have enormous influence because they join AFSCME or organize into voting blocs otherwise, and therefore their votes influence their ultimate bosses.
To me the problem with the high price of many generics is more the other side of the coin: the problems with the current capitalist supply. Regulations are preventing capitalism from having its usual effect. Generics would ordinarily be commodities– that is, something which everyone can produce and in which no one’s product stands out in the consumer’s mind so that they try to buy that brand specifically. Such a happy situation results in a race to the bottom on price as everyone tries to get an edge by cutting prices, and a race to the bottom on prices is WONDERFUL for the consumer.
Instead, for example, each company wishing to broaden its business and devote its manufacturing facilities to getting into the market of making a generic drug must go through an extremely expensive and time-consuming process of getting approval– even if their expertise and manufacturing facilities have been proven to be safe and of good quality many times over in making other drugs. These regulatory roadblocks, such as Scott Gottlieb at the FDA is trying to reduce, are, as Megan points out, preventing a lot more companies from getting into the business of making generics. The fewer the companies, the more inefficient the market and the higher the prices.
But all this stuff is decidedly unsexy, both for policymakers and for the public, and it’s quite profitable for the few market participants that currently do make generics, who therefore devote profits to lobbying to try to ruin any attempt at reform that might increase the level of their competition. Call it Porcupine’s First Law:
“The probability of getting any policy in place varies directly with the multiple of its profitability to lobbyists with the degree to which it’s too boring for the public to care about it.”