Monday, October 14, 2013

The Reason Socialism is bad

Megan McArdle explains the danger of having the government control prices of new drugs. When a government drives down the prices of drugs to the marginal cost of producing the next pill it saves consumers money in the short run but takes away the incentive for companies to develop new drugs and thus robs the future of cures that we have not yet dreamt of:

"Unfortunately, this is a classic case of Bastiat’s dilemma. It is easy for each country’s government to see the high prices that people are paying and intervene to lower them. It is hard for each country’s government, much less its citizens, to envision the new medical treatments that they might get if they paid more for drugs. So their incentives are heavily skewed toward controlling the price here and now, even if that means losing future cures.
Drug development is essentially a giant international collective-action problem. The U.S. has kept it from being a total disaster because we don’t have good centralized control of our insurance market, and our political system is pretty disorganized and easy to lobby. If that changes -- and maybe we just changed it! -- we’ll knock down the prices of drugs to near the marginal cost using government fiat, and I expect that innovation in this sector will grind to a halt. Stuff will still be coming out of academic labs, but no one is going to take those promising targets and turn them into actual drugs."
That is the real tragedy of Obamacare. Even if it works it will be a disaster. The government always works this way. It benefits incumbents at the expense of newcomers, the established at the expense of the upstarts, the large and resourced at the expense of the small, the present and organized at the expense of the future and not yet formed. The future will be robbed of the innovations that the present has enjoyed and they will not even have noticed the theft. Cruel, tragic and stupid. As Mencken said, democracy is the theory that the people know what they want and deserve to get it good and hard.

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