The Dangers of Prescription Drug Subsidies & Price Controls

by Steve Whisler

The stage is set for the 2007 Maryland General Assembly. The Democrats are back in total control and there is nothing in their way this time — no vetoes, no obstacles with the Board of Public Works or Public Service Commission, and no Republican in the Governor’s mansion who could easily call press conferences and share his perspective with the public why extreme, liberal legislation was bad for Maryland. Yes, sir, the Democrats are back in town and the agenda is once again theirs.

There is little doubt that the 2007 Legislature will attempt to subsidize or restrict the cost prescription drugs within our state. Government action to subsidize or cap the price of medicines would have disastrous consequences. Increased government subsidy of prescription drugs in our state would almost certainly require raising Maryland income and sales tax rates. Price caps would decimate profits to pharmaceutical companies that fund research for new cures. Moreover, price caps would impact pharmaceutical industry stock prices and lower the value of many Marylander retirements accounts.

We can’t have that … profits for a pharmaceutical company!

Why is earning a profit really such a bad thing in American society?

Profits are linked with innovation and prosperity; something that many countries in the world lack. Walter E. Williams (2006), a professor of economics at George Mason University and syndicated columnist of A Minority View, offered some insight about profits … something everyone can identify with:

Here’s a little test. Which entities produce greater consumer satisfaction: for-profit enterprises such as supermarkets, computer makers and clothing stores, or nonprofit entities such as public schools, post offices and motor vehicle departments? I’m guessing you’ll answer the former. Their survival depends on pleasing ordinary people, as opposed to the latter, whose survival is not so strictly tied to pleasing people. (¶9)

Liberals and social activists alike suggest that price controls are the answer to solving the costs of prescription drugs. History is replete with examples where price controls have failed miserably. Price controls of meat products in the 1970s were useless because cattlemen and store owners simply changed the name of the meat in the packaging. Again, Williams (2005) illustrates that the public’s outcry for price controls does little to solve a problem created by supply and demand:

In the wake of the spike in fuel prices, many Americans demand that politicians do something. You can bet the rent money that whatever politicians do will end up harming consumers. Despite a long history of their economic calamity, some Americans and politicians are calling for price controls or, what amounts to the same thing, anti price-gouging legislation. As Professor Thomas DiLorenzo points out in “4000 Years of Price Control” (www.mises.org/story/1962), price controls have produced calamities wherever and whenever they’ve been tried. (¶6)

Price controls and government subsidy might be terrific news in the short-term; but such actions will have very damaging effects far into the future.

References

Williams, W. E. (2005, December 7). Caring vs. uncaring. A Minority View. Retrieved from http://www.gmu.edu/departments/economics/wew/articles/05/economics.html

Williams, W. E. (2006, May 10). Caring vs. uncaring. A Minority View. Retrieved from http://www.gmu.edu/departments/economics/wew/articles/06/caring.html