Last year, President Bush officiated at an adopt-an-embryo ceremony at the White House. It was an odd convention (or coven, rather), intended to symbolically protest a vote in the House to ease restrictions on federal financing for embryonic stem-cell research.

Back then, Bush acknowledged the promise stem-cell research held, but disavowed a process predicated on the destruction of embryos: “the way those cells are derived today destroys the embryo,” he said, going on to heap praise on representatives of the “Snowflakes Frozen Embryo Adoption Program,” and 21 of the families it had assisted in “either adopt[ing] or giv[ing] up for adoption frozen embryos that remained after fertility treatments.”

“Rather than discard these embryos created during in vitro fertilization, or turn them over for research that destroys them, these families have chosen a life-affirming alternative. Twenty-one children here today found a chance for life with loving parents,” the POTUS puled.

Would that Republicans fussed as much over the many fully formed human-beings dying daily in Iraq, as they do over fetuses. But they don’t. And for that, the GOP—”culture of life” and all—was hurled from both houses. With the Democrats in control, we’re likely to witness many more grand mals over stem-cell research. So, let me attempt to untangle the issue, not least of all for Rush Limbaugh.

The pompous talk-show host’s sneering assault on a deformed Michael J. Fox was utterly depraved. Aping Fox’s Parkinson’s-induced spasms, Limbaugh told listeners: “He is exaggerating the effects of the disease. He’s moving all around and shaking and it’s purely an act.” Rather than lampoon an-obviously afflicted human being, someone with a head and a heart would have stuck to the issue.

And the issue is this: The founders bequeathed a central government of delegated and enumerated powers. Intellectual property laws are the only constitutional means at Congress’s disposal with which to “promote the Progress of Science.” (About their merit Thomas Jefferson, himself an inventor, was unconvinced.) The Constitution gives Congress only 18 specific legislative powers. Research and development spending is nowhere among them.

Neither are Social Security, civil rights (predicated as they are on grotesque violations of property rights), Medicare, Medicaid, and the elaborate public works sprung from the General Welfare and Interstate Commerce Clauses—you name it, it’s likely unconstitutional. There is simply no warrant in the Constitution for most of what the Federal Frankenstein does.

Ditto the demands issued by the histrionic New-York Democrat, Carolyn B. Maloney:

“How many more lives must be ended or ravaged? How much more unimaginable suffering must be endured until government gives researchers the wherewithal to simply do their jobs?” she frothed back in 2005. Silly me, I guess government-giving-researchers-the-wherewithal-to-do-their-jobs was what the founders had in mind when they bequeathed a central government of delegated and enumerated powers.

Implied, moreover, in Democratic fits over stem-cell research is that if the House didn’t mulct taxpayers of money for research and development, there’d be no R&D. That’s absurd—and is contradicted by the government itself. An un-updated report issued by the United States Department of Health & Human Services states that, “Based on 2002 data, one study reports that private sector research and development in stem cells was being conducted by approximately 1000 scientists in over 30 firms. Aggregate spending was estimated at $208 million. Geron Corporation alone reported that it spent more than $70 million on stem cell research by September 2003.”

“In the Stem Cell Business News Guide to Stem Cell Companies (Feb 2003),” writes the HHS, “61 U.S. and international companies are listed as pursuing some form of research or therapeutic product development involving stem cells. For example, Geron Corp. has announced plans to seek FDA approval to pursue human trials.”

What do you know? The private sector has been beavering away for some time now, exploring the promise—or lack thereof—of embryonic stem cells.

Limbaugh needed only to remind Fox (and his own soon-to-be-dethroned party) of a thing called the Constitution. He needed to berate Fox not for his spasticity, but for using his celebrity to petition Congress for money not his. Limbaugh ought to have suggested Fox refrain from pickpocketing the taxpayer, and raise money for private research among his stinking rich pals. Instead—and in character—Limbaugh beat up on a cripple.

Later, Limbaugh offered a lame apology, the main purpose of which was self-aggrandizement, as usual: “All right then, I stand corrected,” he boomed, “so I will bigly, hugely admit that I was wrong, and I will apologize to Michael J. Fox, if I am wrong in characterizing his behavior on this commercial as an act.”

Still later, Limbaugh—and a host of other former Bush bootlickers, who applauded the worst of Bush’s policies and winked at the Constitution—jumped ship. But that’s for another day.

©2006 By Ilana Mercer
WorldNetDaily.com
November 10

* Credit for screen picture capture

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Price controls quash the ability of the manufacturer to increase his prices in response to high demand, price controls also sever the link between buyer and manufacturer. This translates into the manufacturer’s inability to give us what we want ~ilana

Patents allow the manufacturer to create a scarcity of the product by restricting its supply in order to raise the price ~ilana

A coalition comprising roughly 22 U.S. states from the Pacific Northwest to New England has been organized to “bring about fair prescription prices” for people who do not qualify for Medicaid rates. The states are looking for inspiration from Vermont, Maine and New Hampshire, which are in the process of aggressive legislation aimed at explicit price regulation for the benefit of a segment of the voters saddled with out-of-pocket prescription expenditures.

To “extend lower drug prices to people who are ineligible for Medicaid,” Maine, in particular, has been extracting discounts from drugmakers by threatening to cap their prices.

The euphemisms for this elaborate wealth-distributing scheme run the gamut from “fair prices” to “discounts” to “rebates.” Some representatives even claim that they simply are asserting and experimenting with states’ rights. Never one to complain about devolution of powers from Washington to the states, I somehow have a hard time seeing how the doctrine of states’ rights extends to using the force of the law to plunder the property of individuals from the pharmaceutical sector.

On the federal level, Tommy Thompson, the secretary of Health and Human Services (HHS), has been setting the pace as far as strong-arming the pharmaceutical industry and tinkering with the economy. Thompson threatened to bust the patent for the anthrax-fighting drug, Cipro, if Bayer AG did not lower its price for its most powerful customer, the U.S. government. The Bayer monopoly price of $4.67 per Cipro pill remains unchallenged. In the absence of generic competition, the product’s high price has not forced a voluntary market adjustment on the seller. Bayer’s typical rate for the government is $1.77 per pill, and Thompson knocked that price down to 95 cents a tablet.

Thompson’s tinkering is intended to bolster the national pharmaceutical emergency stockpiles. The states, for their part, are busy robbing Peter to pay at least 13 million voting Pauls who demand a discount on medication. Tendentious interventionists will depict Thompson and the states as laboring to correct the wayward free market. The truth, very plainly, is that where there is an alleged “market failure,” it is safe to say that it is because of government incursion into the economy. The energetic price-fixing and stockpiling from our bureaucrats are ad hoc responses, not to a market deficiency but to deficiencies brought about by ongoing policies of intervention in the economy. Behind the scarcity – or exorbitant prices of drugs – is the regulator’s heavy hand.

The Cipro addle illustrates the point. The government has been asking Americans not to stockpile the medication but to rely on the government’s calculus of probabilities: If the crunch comes, the government promises to be able to treat 12 million people for 60 days of incubation. And never mind that the market has cheaper alternatives.

Only in a command economy does government dictate when the demand for a good has been sated. In a free market, consumers direct supply and demand. And in a free market, increased demand leads to increased supply, as producers compete with one another to satisfy buyers. When the demand for Cipro or any other drug has approximated its supply, buyers – not the government – will have indicated their needs have been satisfied. If every single paying American wishes to store a smallpox vaccine or secure a course of Cipro, if only as a psychological antidote, why not? The recent disastrous events have made this particular resource scarcer at the current price because, among other reasons, more people are bidding for Cipro. But even so, Bayer’s promise to triple the production of Cipro – cranking out 200 million tablets during the next three months – may do little to satisfy a demand driven by almost that many Americans. This is because we do not have an unhampered market.

How would consumer demand have been heeded had the market not been hampered? The same events that hitherto have occurred would have unfolded; the sudden urgent demand for the drug would have been followed by a shortfall of supply. Large demand and short supply initially would send the price of Cipro or any other drug rocketing. At this stage, demonstrators would take to the streets, riding the same old ass and hollering, “Profits equal plunder.” Our bellicose collectivists never understand that our very lives depend on the ability of the manufacturer to read and act on vital market signals. Surging profits in an unhampered pharmaceutical market would signal to the many drugmakers that it’s time to enter into Cipro production.

All these processes have transpired, save one: Drugmakers are not permitted to respond to one of the street signs of the free market – profits. Patent law prohibits pharmaceutical companies from competing for Cipro market share, and in the process of satisfying the buyer’s demand for it, also creating competition and dealing a blow to the Bayer monopoly price tag.

Whether one thinks that granting to an inventor a near 20-year monopoly on the manufacture, use or sale of a product is the right thing to do is quite apart from acceding that a patent places a barrier on entry into the market. This barrier is the essence of monopoly. Capturing a large market share by pleasing consumers does not a monopolist make. But obtaining from government a grant of privilege that gives the profit seeker the legal power to restrict access into the market, so that he is undeterred by competition, qualifies.

Any coherent explanation for the shortages or elevated prices of certain drugs must proceed from the understanding that patents allow the manufacturer to create a scarcity of the product by restricting its supply in order to raise the price. As the actions of Thompson and his compatriots at the state level demonstrate, the reality of government-created shortages is ameliorated either by government fiat or, in this instance, if Bayer relents and licenses the drug to generic manufacturers. Granted, Food and Drug Administration (FDA) regulations play a role in limiting our choices and restricting competition in the market. Getting a new drug approved today costs about $500 million and takes approximately 10 years. The sclerotic FDA does not, however, explain why, once a shortage has occurred in an already-approved drug, the self-regulating market mechanisms cannot kick in to overcome the scarcity. Patents explain this.

The Centers for Disease Control and Prevention have expanded the range of anthrax prophylactics to include doxycycline and others. The pressure has been somewhat lifted off Cipro as the first-line agent of choice in treating anthrax. It would, however, be a mistake to consider the case of Cipro a mere fluke; it’s a harbinger of things to come. “Public health” is not safe so long as companies receive from government a protracted monopoly on the manufacture, use or sale of a product.

The immediate upshot of government stockpiling of these compounds is to make them less available to the ordinary person and to increase prices throughout the drug market. Subsidized government programs themselves spur “a significant purchasing of drugs,” confirms the Canada-based Fraser Institute, and “can increase prices in the rest of the market.” Drug manufacturers respond to the fixing of prices by government by recovering their legitimate or alleged costs from nongovernment buyers. And wouldn’t you know it: The not-quite-invisible hand of government is implicated in the very prescription-drug prices the states now are attempting to “fix.”

Discussion of prohibitive prescription costs is a perennial cue for the media (including a 1999 CBS 60 Minutes segment) to dust off some American seniors and follow them en route from Maine into Canada to fill their life-saving prescriptions. The story’s claim: Victimized by the “pharma-villains,” the only way many American seniors can get affordable, life-saving medication is this pilgrimage to Canada, where price controls are hale and hearty.

Ironically, the trek to Canada is unnecessary. American seniors can get similar gains by “bargain hunting” at home, according to researchers at the Fraser Institute. Still, prescription-drug prices generally are lower in Canada than in the United States. Simple ignorance of consumers partly explains the rush to adopt Canadian-style regulation of drug prices in states such as Maine, Vermont and others.

With Canada’s declining standard of living, a depreciating dollar and poor productivity, little wonder Canada has been called an honorary member of the First World. Average prescription-drug prices are indeed lower in Canada, but then again goods and services are generally cheaper in poor countries. “Low drug prices reflect Canada’s low standards of living,” explains the Fraser Institute’s John R. Graham. “They are the marketing response of the pharmaceutical companies to declining incomes.” Manufacturers will adjust prices to keep selling in a poorer country.

Big government is in vogue. A bureaucracy that is enjoying a popularity windfall is on the verge of convincing Americans a Canada-style price-control regime is in their best interests. If Americans wish to emulate Canada’s Patented Medicines Prices Review Board, let them be forewarned that, in Canada, the board ensures that price increases follow a complex guideline in which supply and demand has no role. The immediate effects of Canada-style price controls in the United States will be high prices for generic and older patented drugs and little competitiveness in the price of innovative drugs.

Because price controls quash the ability of the manufacturer to increase his prices in response to high demand, price controls also sever the link between buyer and manufacturer. This translates into the manufacturer’s inability to give us what we want. Are Americans ready, like their flaccid Canadian neighbors, to allow government to dictate their needs?

In the long run, price controls will create the incentive to overconsume. For drug manufacturers, price controls will reduce the incentive to invent, meaning fewer breakthrough drugs for patients. The prognosis: a spiral of demand and a diminishing supply, to say nothing of less flexibility to deal with crisis situations.

We have come full circle back to the free market.

©2001 By Ilana Mercer

  Insight On the News (Page 1 and page 2)

  Symposium

  November 26

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A patent, in effect, allows an inventor to forcibly prevent others from practicing the patented invention, even if another inventor arrived at the invention independently, an exceedingly common occurrence ~ilana

In a command economy, government decides when the demand for anthrax tablets has been satisfied, but not in a free market. In a free market, consumers direct supply and demand. And in a free market, increased demand leads to increased supply, as producers compete with one another to meet the demand ~ilana

During the anthrax attacks, Bayer AG, the German pharmaceutical giant and manufacturer of the anthrax-fighting drug Cipro, experienced a windfall. The sudden demand for Cipro could not have come at a better time for a company that had been in a slump and was hemorrhaging due to a considerable operating-profit shortfall. The financial press’s accounts of how Bayer was scouting for bailout partners soon gave way to detailing Bayer’s moves to triple its production of Cipro. With Cipro, Bayer was vying for some of the $643 million the Bush administration had planned to put toward increasing stockpiles of antibiotics.

Scrambling to fill every order placed by government, Bayer ran its facilities 24 hours a day, seven days a week; placed its Connecticut plant on an accelerated production schedule; and even reopened a defunct German plant. The likelihood, however, that Bayer would ever meet consumer demand for Cipro is slim, if not anorexic.

In a command economy, government decides when the demand for anthrax tablets has been satisfied, but not in a free market. In a free market, consumers direct supply and demand. And in a free market, increased demand leads to increased supply, as producers compete with one another to meet the demand. When the demand for Cipro has approximated the supply of Cipro, buyers—not the government—will have indicated their needs have been satisfied. But Bayer’s promise to triple the production of Cipro—cranking out 200 million tablets over the next three months—may do little to satisfy a temporary demand driven by almost as many Americans.

When there is a shortage of a good, it is safe to say that it is a result of government incursion into the economy. In the Cipro shortfall, the likely culprits are Food and Drug Administration regulations and the patent system. FDA regulations go some distance toward explaining why our choices are limited so as to make Cipro the only drug that has been approved for the treatment of the inhaled—and the most lethal—form of anthrax. But FDA regulation—which has been streamlined in recent years in order to allow for the introduction of various AIDS drugs—does not explain why, once a shortage has occurred in an already approved drug, the self-regulating market mechanisms cannot kick in to overcome the scarcity.

In contrast, the patent system hasn’t changed significantly in terms of the length of the patent granted. As bad as FDA regulation is, patent law constitutes even more of a barrier to entry into the pharmaceutical market. In the case of Cipro, the acute scarcity of the drug is indeed a creation of the law. The anthrax panic, preceded by the events of September 11, has served to amplify the manner in which patents subvert the market and invite—even require—further central planner tinkering.

How would consumer demand have been heeded in a market unhampered by patent? The same events that have hitherto occurred would have unfolded; the sudden urgent demand for the drug would have been followed by a shortfall of supply. Large demand and short supply would initially send the price of Cipro rocketing. Profits in an unhampered pharmaceutical market would signal to the many drug makers that it’s time to enter into Cipro production.

These processes have all transpired, save one: Drug makers are not permitted to respond to one of the street signs of the free market, to profits. The law prohibits pharmaceutical companies from competing for Cipro market share, supplying the demand, and, in the process of creating competition, dealing a blow to the Bayer monopoly price tag. Because of specific patents Bayer has obtained, other companies cannot bring supply and demand into equilibrium, thus satisfying buyers.

Whether one thinks that granting to an inventor a near 20-year monopoly on the manufacture, use, or sale of a product is the right thing to do, is quite apart from acceding that a patent places a barrier on entry into the market. This barrier is the essence of monopoly. Capturing a large market share by pleasing consumers does not a monopolist make. But appealing to government for a grant of privilege that gives the rent-seeker the legal power to restrict access into the market, so that he is undeterred by competition, qualifies. Ensuring that there is only one price and that a competitive price—a function of the presence of other sellers in the market—cannot arise is also the practice of a monopolist.

While making her something of an untouchable to the international pharmaceutical kingpins, certain provisions in India’s patent law account for a thriving generics industry. Compare the monopoly price of $350 U.S. for a course of Cipro to the roughly $20 per course of treatment set by profitable Indian generic companies. The patent has survived challenges, which would explain why, in turn, the monopoly price remains unchallenged. In the absence of competition, the product’s high price does not markedly reduce sales or force a market adjustment on the seller. This patent has pretty much guaranteed that Bayer reaps a considerable profit irrespective of price or less-than-robust sales.

On how the patent holder can generate scarcity and draw a monopoly profit, the distinguished free-market economist Sir Arnold Plant wrote: “Whereas in general the institution of private property makes for the preservation of scarce goods, property rights in patents . . . make possible the creation of a scarcity of the products appropriated which could not be otherwise maintained.” In his 1974 essay “Property and Ownership,” Plant noted that the legislator enables the beneficiary of a patent to secure an income from the monopoly conferred upon him by restricting the supply in order to raise the price. A patent, in effect, allows an inventor to forcibly prevent others from practicing the patented invention, even if another inventor arrived at the invention independently, an exceedingly common occurrence. Merely arriving first at the patent office can give inventor A a legal edge over inventor B, who stumbled in five minutes later. Try as it may, the law fails to address the moral claim to practice an invention that inventor B can assert.

The moral claim of concurrent inventors notwithstanding, the fact that Bayer’s Cipro patent does not expire until December 2003, and the fact that Bayer is the only company that is allowed to produce ciprofloxacin until then, leaves us with the reality of shortages. There is no telling whether Bayer might relent and license the drug to other drug makers, thus enabling generics to fill the demand generated in the aftermath of September 11. The anthrax threat has, however, drastically altered the consumer’s tolerance.

It is the aim of the U.S. government to be able to treat 12 million people for 60 days of incubation. This is the calculus of probabilities courtesy of a central planner. But why is the government justified in facilitating access to the medication for only a fraction of the population? If every single paying American wishes to secure a course of Cipro, if only as a psychological antidote, why not? Tommy Thompson, U.S. Secretary of Health and Human Services, would like to control what American consumers access. If the rise in firearm sales in the aftermath of September 11 was anything to go by, Americans were looking out for themselves.

Not content with Bayer’s assurances to meet demand, Sen. Charles Schumer (D-N.Y.) inadvertently expressed what amounts to unease about the hampered drug market. “I’d still feel a lot better with several competitors,” said the senator, adding that “it goes without saying that if we increase the number of manufacturers producing ciprofloxacin, we are more likely to have enough on hand, should we need it.”

The fact that HHS Secretary Tommy Thompson went ahead and asked Congress to suspend the patent on Cipro is neither here nor there. It tells us nothing substantive about the patent system, but it speaks volumes about the nature of government. It tells us that government can as easily revoke monopoly privileges as it can revoke genuine liberties. It tells us that when you make the law—just or unjust—you can also break it.

©2001 By Ilana Mercer

The Ludwig von Mises Institute (Archive)

October 25

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