President Donald Trump is trying to best Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA) in demonizing pharmaceutical companies and using government power to lower drug prices. He announced last week that he will use the buying power of Medicaid to push prices down “to match the lowest prices paid by other developed nations.” The possible savings have not mollified critics of the plan, who say it would preclude larger savings in the works elsewhere.
But there is no getting around the fact that any time the government puts its thumb on the drug price scale, it risks reducing pharmaceutical firm revenues and forestalling the development of new life-saving or pain-reducing drugs. As a National Bureau of Economic Research study found, “cutting [drug] prices by 40 to 50 percent in the United States will lead to between 30 and 60 percent fewer R and D projects being undertaken in the early stage of developing a new drug.”
The mistake here is not just one of drug policy but a philosophical error. Call it the iron lung fallacy: the goal of ensuring a fair distribution of existing goods and services at the expense of a possibly superior future alternative.
At the height of the polio epidemic, those who had suffered the worst effects of the paralyzing virus not only could not move their legs but could not effectively breathe on their own. The ameliorative intervention was a machine known as the iron lung. Hospital wards in the 1940s and early 1950s were filled with both children and adults, fully enclosed except for their heads in the devices that used air pressure to force paralyzed lungs to rise and fall, as one does when breathing. They did not come cheap: An adult “negative pressure ventilator” cost $2,000 (or $39,000 in current dollars).
One can imagine those committed to “fairness” pushing to ensure that no polio victim would be denied iron lung access — and advocating spending to ensure that. That, however, was not the goal of the March of Dimes, the private charity that instead raised millions to support the National Foundation for Infantile Paralysis, which, in turn, supported Pittsburgh scientist Jonas Salk in what proved to be his successful effort to create a polio vaccine.
Small donors making small donations in hundreds of local communities were willing to invest, like modern-day drug companies, in a product that did not yet exist and might never. Trump’s finest hour has been a similar and atypical investment by the government in the COVID-19 vaccine, paying Moderna and Pfizer for a product they were still developing.
The history of medicine offers other examples of iron lung-type policy errors avoided. Instead of a TB vaccine, fairness advocates might have pushed for universal access to the “cure” offered by sanitoria. But the collateral damage of government fairness diktats can go beyond medicine. Had the government set oil and gas prices artificially low or dictated drilling methods, the United States would not have benefited from the new technology known as fracking, which lowered prices by billions by increasing supply. This is what economists call a fundamental shift in the supply curve, created by innovation.
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Such is the core problem with the political fad of our day. Socialism’s alleged benefits are predicated on the “fairness” of sharing existing goods and services, while suppressing the profits that lead to innovation. That’s what ultimately led to the collapse of the Soviet Union, which could not innovate new defense technologies (Reagan’s “Star Wars” defense intimidated the Russians) nor new consumer products. That’s why Nikita Khrushchev was floored by the prosperity he encountered on a visit to Iowa, as were European World Cup visitors to Kansas City this year.
In effect, the perennial progressive push for fairness above all is a demand for iron lungs for all. We should all be grateful not to live in that world and avoid its temptation.
Howard Husock is a fellow at the American Enterprise Institute and author of “The Projects: A New History of Public Housing.”
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[ H/T Washington Examiner ]
