It truly is an honor for me to have this opportunity to guest-blog on PoL this week, at the invitation of Wally Olson, a gentleman and a mensch, whom I have known for many years. It appears that Wally invited me to do this and then promptly left town; plausible deniability remains high on the agenda of any sound legal thinker. I on the other hand am a lowly economist---a senior fellow at the Manhattan Institute---with many theories and mounds of data, always anxious to publish yet another paper showing that water flows downhill. So: Where to begin? The landscape of legal and regulatory abuse, after all, is a target-rich environment.
Well, it seems that pharmaceuticals have dropped off the immediate news cycle radar screen, but do not be fooled: Eternal vigilance, as Pravda used to put it, remains necessary. After all, with the new Medicare drug benefit, future spending is likely to exceed current projections, and in any event bureaucrats and politicians have powerful incentives to constrain spending by limiting formularies, and if the medicine that you need is not covered, well, feel free to write a strongly worded letter to your Congressman. But the problem of legalized theft is worse than that, because public officials with short time horizons---the next election is never more than a few years away---constantly are confronted with opportunities to transfer wealth to their constituencies at the expense of someone else.
And emergency conditions are not salutary in terms of resistance to such temptations. So let us begin with Saga of Cipro. (Actually, let us begin with a full disclosure: The Pharmaceutical Research and Manufacturers Association supports a substantial part of my work in defense of capitalism.) Cipro is an antibiotic effective against airborne anthrax. When the potential terrorist use of anthrax became a serious concern in 2001, the Centers for Disease Control and Prevention asked Bayer Pharmaceutical (the producer of Cipro) to obtain Food and Drug Adminstration approval to label the drug for the treatment of anthrax. Bayer did so at its expense, and then donated 4 million doses to the federal government.
The feds then demanded another 1 million doses at a discounted price. When Bayer resisted, the government threatened to suspend the patent on Cipro, thus forcing Bayer to sell the additional doses at one-quarter of the then-market price. Other major purchasers of Cipro then demanded that same price; and Bayer enjoyed no liability protection against potential lawsuits stemming from any side effects attendant upon use of the drug. Inside the Beltway, it is no mere cliche that no good deed goes unpunished.
This government theft, by the way, was orchestrated by those pro-business, pro-free enterprise, pro-capitalism Republicans, in the person of then-HHS Secretary Tommy Thompson. Would anyone like to venture a guess as to the ensuing effects upon research and development incentives in the context of bioterrorism threats? Government compassion yet again rears its ugly head.