Friday, October 31, 2008

What would you do?

Charles Hooper wrote the following commentary:

One of the unpleasant things I do as a consultant is recommend that pharmaceutical firms halt the production of uneconomical new medicines. I'm a drug killer.

If American voters hand Barack Obama the presidency and a filibuster-proof Democratic Congress, I'll be doing a lot more of this unhappy work.

Basically, what's going on here is that Mr. Hooper would be recommending to the pharmaceutical companies that employ him, not to produce several important drugs. At first this seems really heartless that he'd recommend to cut those things. I'd like to try and explain that it's not. And I bet, if you were in the same situation, you'd do exactly the same thing.

The concern is that Obama has talked about creating a single payer system for pharmaceutical products. Basically, his idea is that by forcing all payment through the government, the government can then negotiate a much lower cost for pharmaceutical products. So the government is forcing down the wage that the producer can get for their labor.

Now imagine in your current job that the same thing happened. Imagine that the government suddenly decided that all computer programmers made too much money. That they would no longer allow your company to pay for your services. All computer programmer services would be paid for by the government. Now, you couldn't just go out and get a different computer programming job, because all of them, even those offered by competitors to your company would be paid for by the government. And the government has decided that computer programming should be paid at minimum wage. What would you do?

Some people, who really love computer programming would still do it. Some people currently write computer programs and give them away for free. So some people would stick to it. But most people would look at the situation and realize that, on average, Wal-Mart pays more than minimum wage. And others who had skills other than computer programming would realize that they could make more money doing those other jobs. I might finally decide to take that risk and open up a franchise of one of my favorite pizza places in Wisconsin. Many people would make this decision to do something else.

And that's what Mr Hooper is talking about. Medicines are the labor of the pharmaceuticals. No longer would the current employers of the pharmaceuticals be allowed to pay them. All production would have to be paid for by the government. The government would then be in a position to demand that the price of medicine be drastically reduced. And what would happen is that people who work for pharmaceuticals would decide that they can make more money elsewhere. The ability of the pharmaceutical to produce new medicines will essentially dry up.

It's not the heartlessness of the pharmaceuticals that would be doing this, either. It's the rational reaction of people who work for a pharmaceuticals. They would be deciding that it's better for them to pursue other opportunities. Even though we like to think of pharmaceuticals as entities that make decisions. They're not. They are entities that are made up of people. And when the people go elsewhere, the pharmaceutical no longer exists.

So if single payer healthcare comes along it will achieve its goal of getting rid of expensive medicines. But that will not help the people who need the medication. Because the medicines will cease to be produced. Atlas will shrug.

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