Posted by: bmeverett | October 14, 2013

Asthma and solar energy

No, I am not going to argue that installing solar panels on your roof will give you asthma, but there is an interesting philosophical connection. The October 12 edition of the New York Times, included an article entitled “The Soaring Cost of a Simple Breath” by Elisabeth Rosenthal, which you can find at Ms. Rosenthal’s article addresses the high cost of life-saving asthma medication in the US, a very serious issue, but the standard NYT ideological blinders prevents her from understanding the cause of the problem.

Ms. Rosenthal starts her article with a clear statement of a problem: “Pulmicort, a steroid inhaler, generally retails for over $175 in the United States, while pharmacists in Britain buy the identical product for about $20…” Her explanation for this disparity? “Unlike other countries, where the government directly or indirectly sets an allowed national wholesale price for each drug, the United States leaves prices to market competition among pharmaceutical companies.” Furthermore, she notes that “businesses often successfully blunt market forces.” In other words, the problem is the drug companies. That’s the natural reaction of the political left, but Ms. Rosenthal’s own article tells a rather different story.

According to the article, there are three political issues influencing the price of drugs: patents, anti-trust laws and regulatory control by the Food and Drug Administration. Patents are a simple and powerful idea. Inventors are granted an exclusive right to sell their invention but only for a limited period of time, after which the idea enters the public domain for anyone to use. In the case of drugs, once the patent expires, other companies can produce generic versions of the drug at prices that reflect only the cost of production and not the R&D and risk born by the patent holder. This principle is enshrined in Article 1(8) of the US Constitution.

There are in fact some special issues related to drug patents. A company’s drug patent is valid for 20 years from the date at which the patent application is filed. The company’s inability to market the drug during years of clinical trials may effectively deprive the company of the profits from its invention. This special situation encourages drug companies to circumvent the patent law by seeking new patents on slightly altered versions of the drug or on new uses of the drug. The Patent Office may also grant patents for drug delivery devices, such as inhaler pumps, which limit the availability of generic medications.

Ms. Rosenthal tells the particularly interesting story of the impact of the federal government’s decision to ban chlorofluorocarbons, which were thought to be damaging the Earth’s ozone layer. This decision effectively banned the generic inhaler pumps whose patents had expired and required patented new designs which could be sold once again at monopoly prices.

In telling this story, Ms. Rosenthal offers a strange, but rather telling quote: “Dr. Robert Lionberger, the [FDA’s] acting deputy director in the office of generic drugs, said that research into the development of generic inhaled medicines was the agency’s highest priority but that the effort had been stalled because of budget cuts imposed by Congress.” Logically, one would assume that when an agency’s budget is cut, the lowest priority projects are cut first, allowing the agency to concentrate on the highest priority needs. Why is the FDA cutting its highest priority research? Did Congress actually order them to cut out research into generic inhaled medicines? Did they cut all activities equally regardless of their priority? I can’t speak to Dr. Lionberger’s motivations, but “reverse prioritization” is the standard tactic for elected officials and bureaucrats to punish the public for refusing to grant them unlimited access to the Treasury.

It should come as no surprise that the drug companies will hire teams of the best patent lawyers to try to extend their patents, “re-patent” their drugs for new uses or otherwise delay the release of their patents into the public domain. The real question is why the Patent Office complies so easily if these practices are, as Ms. Rosenthal argues, so detrimental to the public welfare. After all, the government, not the drug companies, is the decision-maker here.

Anti-trust law is another bedrock of the American legal system. Companies must compete and not collude in setting monopolistic prices. Anti-trust violations are criminal, not civil, and managers will go to jail for anti-competitive practices. Ms. Rosenthal is outraged that Congress passed a special exemption to the antitrust laws, called “pay for delay”, that permits drug companies to pay potential generic manufacturers not to enter the market. This law is clearly anti-competitive, and I share Ms. Rosenthal’s outrage, but who is to blame? In her view, the drug companies’ $250 million in lobbying efforts are the culprit. But what about the elected officials who granted the drug companies this special favor?

Ms. Rosenthal’s final argument is that the drug companies often choose to maintain their drugs as prescription only rather than over-the-counter (OTC) medications. This decision not only raises the price of the medicine, but requires the patient to pay for a doctor’s visit to get the prescription. Again, whose fault is this? The switch from prescription to OTC is a regulatory step made by the FDA, not the drug company. Why is the FDA blocking these switches if they are so clearly in the public interest?

Ms. Rosenthal’s article attempts to blame corporations and their lobbying efforts for the high cost of asthma medication. Her narrative indicates instead, however, that the fault lies with the willingness of Congress and federal regulatory agencies to grant special favors which are clearly detrimental to the interest of consumers. Corporations can’t obtain these favors without the active connivance of elected and unelected officials. If we discovered that we could gain legal immunity from parking and traffic offenses by donating money to the campaigns of local officials, most of us would do it in a heartbeat. We rely on both laws and ethical standards to keep municipal officials from selling such favors.

The Founding Fathers recognized this problem and attempted to address it, at least at the federal level, by limiting the powers of the federal government. Madison and company understood that politicians will always try to expand their authority and that private individuals will always seek favors from their government. In some cases, such as the First Amendment limitations on government control over speech, peaceable assembly, petitioning for redress, religion and the press, the Constitution has held up reasonably well, despite constant assaults from various interest groups. In the commercial area, however, all constitutional restrain is gone. The Founding Fathers believed that they were limiting the federal government’s power to the narrow realm of interstate commerce (Article(8)(3)). Over the years, however, the term “interstate commerce” has lost all its meaning, and the federal government can now do essentially whatever it pleases in the commercial sphere. When these restraints are gone, politicians will use their power to grant favors to preferred constituents, like the drug companies. Here is where the real blame lies.

Returning now to solar energy, most people on the political left see the federal government as the proper locus of decisions on how much energy we should use and how that energy should be produced and distributed. In their view, Congress and the federal energy bureaucracy consist of experts who spend their days planning the economy to ensure growth and fairness. There are, of course, many people in the Department of Energy and other parts of the government who try very hard to do just that. Their efforts, however, are overwhelmed by politicians, who have no interest other than using their power and money to build and reinforce electoral coalitions. Solyndra is the poster boy for this problem. A powerful constituent with ties to the White House received $500 million in public funds for a bad idea that quickly went bankrupt.

Just as the federal government has contributed to the increased cost of asthma medication, it is contributing to raising the price of energy. The stated rationale is to address environmental and national security problems, but the real driver is private interest.

There would be no ethanol or wind power in the US were it not for the granting of special favors to companies that make money at the public expense. The market, left to its own devices, would never produce this result. Consumer interest enters the political equation only when the public becomes upset enough to throw people out of office.

NYT articles on public policy issues seem to follow a standard template. First, they identify a problem. Second, they note the pervasive failure of the free market to solve the problem and the need for strong corrective action by the government. Third, they express disappointment or outrage that private interests subvert the government’s efforts though lobbying and campaign contributions and thus make the problem worse. Fourth, they support stronger government authority to counteract the insidious influence of the lobbyists. One would think that the smart reporters on the NYT staff would figure this out. Don’t hold your breath.


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