Wednesday, March 24, 2010

Killing the Golden Goose Part One--Pharmaceutical Companies

Dr. Arthur Laffer, one of the great economic minds of our generation recently published a piece whose title he adapted from a quote by Steven Landsburg: "Economics Can Be Summarized In Four Words: People Respond to Incentives."

Companies are just like people.

In the early 1990's when BillaryCare was on the table, the Clinton Administration decided they needed a villain (sound familiar?) so they began a vicious attack on the pharmaceutical industry. The only problem was, the pharmaceutical companies were busy developing drugs like Lipitor that prevent costly and serious health problems such as strokes and heart disease. BillaryCare failed and the drug companies continued to invest billions in Research and Development.

Victims of cancer and diabetes, AIDS, epilepsy, leukemia, high cholesterol, even impotence are healthier and happier for it. A prescription that prevents surgery (or death!) is certainly a good trade from an economic viewpoint but also from a humanitarian perspective. Tax credits for R&D and trademark protection from generic competition for a period of time allows the companies to recoup the billions of dollars in investment required to develop efficacious drugs that benefit you and me. And reinvest those profits to develop future drugs.

Imagine a world where incentives to invest and discover new drugs is replaced by a world that penalizes the same and you peak into our future under ObamaCare.

Karl Rove sheds some light on that scenario in an editorial in the Wall Street Journal: "Drug companies will start raising prices to pay billions in new taxes they will have to pay starting next year. New taxes on medical devices and insurance companies will show up in higher prices and premiums before long."

In other words, when these companies are penalized with higher taxes, for example, we can kiss innovation and discovery good-bye. People and companies respond to incentives. Not onerous penalty after onerous penalty.

When Roger Baldwin, founder of the American Civil Liberties Union first went to Russia in the late 1920's, he wrote home to his mother (according to Amity Shlaes in The Forgotten Man) "Everybody is poor together. There is much discontent, much regulation of life, but not much terrorism or repression except of the old upper classes."(71)

Allow me to translate. What he is saying is, "Let's all be poor together and while we may not enjoy it, we'll make sure the ones who aren't poor don't enjoy one minute of their lives either. If they do, we'll terrorize them."

This, my friends, is Obama Care on parade. Slay the Golden Goose. Then gloat about it and pat yourself on the back, all the while.

No comments:

Post a Comment