Well, they’re at it again. Heritage put out another error-filled report. This time Nina Owcharenko helps us to Debunk the Myths of Drug Importation Of course, what she doesn’t realize is that some economists have actually uncovered amazing new discoveries in this area... The laws of supply and demand apply. Jude Blanchette wrote a good article on this issue about a year ago.But, let’s look at Owcharenko’s first “myth”.
“Myth #1: Importation will lead to lower prices in the United States.”
Now, for refutation, let’s look at the sentence which follows in her own article: “Economists, both liberal and conservative, agree that drug prices will not drop in the United States as much as they will rise abroad.” Is it just me, or does this imply that importation will lead to lower prices in the US? Even if that isn’t the implication, it’s true. Importation will lead to a higher supply of available drugs. Therefore, prices will be lower than otherwise. Simple supply and demand analysis. Will prices abroad rise? Yes. Importation would be an increase in demand for other countries. So, prices rise. Simple supply and demand again.
Of course, she has a fun claim here: “wholesalers could buy drugs at lower prices but would not necessarily pass those savings on to their customers.” She could have a point here. If the government prevents wholesaling from being a competitive industry (by licensing requirements and the like), the savings could just go to wholesalers in the form of higher profits. That’s a good argument for making the drug wholesale business free from government intervention. Thank you, Ms. Owcharenko. Next, please.
“Myth #2: Importation will force other countries to pay their “fair” share.”
“Forcing other countries to pay higher prices does not mean that prices in the United States will drop. According to economist Robert Helms of the American Enterprise Institute, the segmented marketplace in pharmaceuticals allows manufacturers to sell their products to different consumers at different prices. Therefore, a price increase abroad would not necessarily cause a price drop in the United States. Producers would lower their U.S. prices only if market conditions in the United States forced them to do so.”
Very interesting... You mean to say that the “segmented marketplace” caused by, say, a ban on drug importation, allows different prices to be charged different places. Good point. I agree. But, the very purpose of legalizing drug importation is to remove that “segmented” nature. Make the world into one market unified by arbitrage. The result: one world price. It’s not that the price increase abroad causes a price drop in the US. That’s just silly. If drug importation were allowed, they would both be caused by the process of international arbitrage.
“Myth #3: Importation is free trade.”
The end of the section reads: “It is true, of course, that in principle allowing imports from countries with price controls or subsidies would nudge the world towards freer trade. But while that may be theoretically accurate, the leading bipartisan proposal, S. 2328, introduced by Senator Byron Dorgan (D-ND) and others, includes a section entitled “Restraint of Trade Regarding Prescription Drugs.”[8]
Among other things, this section would make it unlawful for a pharmaceutical manufacturer to charge different buyers different prices for a drug, to deny the sale of a drug to a buyer, or to limit the supply of a drug to a buyer. Such policies would not create a “freer” market for pharmaceuticals, but would regulate the market even further.” Okay, so what has been proposed by Sen. Dorgan isn’t free trade. I agree with that. But, why is it that we can’t advocate good policy as opposed to the Senator’s proposed bad policy? Just because what Congress calls “importation” isn’t free trade doesn’t mean that the real thing isn’t free trade.
“Myth #4: Importation is safe.”
“The Food and Drug Administration (FDA) has been vocal in its concern over the safety of imported drugs. The FDA regulates the domestic market for pharmaceuticals, but not foreign markets, and has stated on numerous occasions that it cannot guarantee the safety of drugs obtained from foreign sources. Even without the legalization of prescription drug importation, the FDA battles to keep counterfeit drugs out of the United States. According to FDA Associate Commissioner for Policy and Planning William Hubbard, ‘FDA has seen its number of counterfeit drug investigations increase four-fold since the late 1990s.’”
Could it possibly be that market participants will take the risks into account? Not to mention that drug counterfeiting (which would still be called fraud on the free market) can actually be dealt with in other ways. For example, business reputation and the like. There’s a common assumption that appears among Statists. “The people are stupid, while the bureaucrats are smart.” From this assumption, it directly follows that the FDA is helping the people by making decisions for them. But, what if the assumption fails? What if an individual knows more about his own subjective situation than a bureaucrat hundreds of miles away does? Suddenly, the case for regulation breaks down entirely. I’ll leave it to the reader to decide which assumption is closer to reality.
“Myth #5: Importation won’t hurt research and development.”
Here there’s an interesting definition... What is “hurt”? If it means “lessen”, then a case may be made. But if it means “made less efficient”, then I doubt it. The current state of protectionism leads to an inordinately high amount of research and development. (Of course, foreign price controls offset this to some degree.) Drug importation, however would immediate remove one of these, and would lead to pressure to remove foreign price controls. The end result then would be the actual market price of the drugs, which can then be used as a guide to determine how much R&D is actually efficient. Eliminating the FDA would further move us toward the efficient outcome. The current system of protectionism allows great inefficiencies to occur in the pharmaceutical industry. Patents, bans on drug importation, subsidized drug research, and the FDA all create distorted incentives so that the actual free market outcome is hidden behind a web of coercive regulation. No, allowing real drug importation won’t solve everything. But, it’s an important step in actually freeing the market from its governmental chains.
