Provocative line: “The US is the only developed nation on Earth which allows pharmaceutical companies to set their own prices.” Of those 18 provocative words, the most egregious is “allows.”
http://www.abc.net.au/news/201...
That presumes government owns all property, real and intellectual, in which it magnanimously “allows” us a share, but only as it, government, please. That further presumes that government itself is not the cause of the problem in the first place. Both of those presumptions are wrong, to our great harm.
To make this simple, I lay the matter out in clear terms below. That way we can begin discussions wherever it is that you first disagree.
Free markets work best to allocate scarce resources.
For free markets to work, certain premises are required: many small, independent agents; free flow of information; no distortions such as tariffs, barriers, monopolies
The proper role of government is to ensure those premises. Instead, government chooses to meddle directly, and inevitably makes things worse. This is known as iatrogenic disease.
In particular, private monopolies are not an issue today. All private monopolies fail: someone always cheats, or defects; substitutes arise; technology advances; fashions change. And if a monopoly should arise, we have a vast apparatus in the US, between the Department of Justice and Federal Trade Commission.
(Not that those folks have a good track record, viz. AT&T, IBM, Microsoft, Apple, Amazon Indeed when he was six, my son asked a challenging question, “how can it be a monopoly if it’s something you don’t need?” I wonder.)
Today, private monopolies cannot arise. With modern technology, international trade and global markets, they are simply infeasible.
No, the only durable monopolies are those imposed by government, because government first holds the monopoly on violence. Now some government monopolies are good, and temporary. Copyrights, trademarks, and patents are in the US Constitution.
Others, not so much. That latter includes all the frauds amongst cronies and politicos. That category is the worst violation of free market premises ever, and the one most perpetrated. Cronyism has done orders of magnitude more damage to the US economy than any other violation, including insider trading.
As to patents, a primer on the economics. Invention, like any other good or service, must be rewarded in order for it to be produced. Unlike goods and services, intellectual property is peculiarly subject to theft. So government gives inventors standing (term limited) to protect their property with civil remedies.
That patent is like a lottery ticket. The inventor tried 10 things. Lost his investment of time, effort, and cash in nine of them. The tenth thing seems to work. Now he must make enough on that tenth thing not only to reward that effort, but to recompense him for the other nine as well.
Say the 10 ventures cost $100,000 each. That means the tenth winner must return AT LEAST $1 million. Quite a bit more, in fact, because government comes around to seize its taxes first, and after that, the inventor must do more than break even.
That’s the social contract. Before the fact, the politico promises the productive person if he takes risk and makes something that works, he can cash in that lottery ticket.” But after the fact, the politico hypocritically turns all populist and say “I don’t feel that $1,000,000 is merited. I feel $500,000 is more than enough”
Who the (trigger warning) is that politico to decide market value? How dare that politico feel it’s up to him to “allow” one price rather than another?
Is the patent valid? Then do not violate the terms of the deal.
Is there no other competition? Then tell the (trigger warning) FDA to do its job.
Is the IP such that people really do need it, as my son asked? Then we are sympathetic and offer generous social safety net.
But that requires politicos with the (trigger warning) to make the case in good faith. “We cannot let those at risk suffer. But neither can we put the burden solely on the inventor, whose contract we must honor. Therefore let us share the burden.” Said no politico ever. Far easier to demonize inventors and amerce them.
Australia is itself trying to cheat. You wangle discounts for mass sales. But if you then turn around and undercut the inventor in other markets, that game stops pretty quick. Your bit of extra market does not justify the price loss in other markets. More important, it does not justify destroying property rights, patent law, or Constitutional principles.
Finally, there’s this, which I’d bet you’ve never heard before. National Bureau of Economic Research published a brilliant paper by William Nordhaus, “Schumpeterian Profits in the American Economy.
http://www.nber.org/digest/oct...
Well worth the time. But if tl;dr, here’s the key: Entrepreneurs capture only a few percent of the total value of their work. That’s the nature of free markets and open society. No government involved. So if a Bill Gates or Steve Jobs makes a billion, it’s because society has benefited hundreds of billions.