Jewish World Review Nov. 17, 2003 / 22 Mar-Cheshvan, 5764

Thomas Sowell

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Free-lunch medicine: Part III | A successful political crusade is incomplete without a villain. To play St. George, you need a dragon. The crusade for government control of medical care has made the pharmaceutical industry its villain.

First, there are the "unconscionable" profits of the firms producing medications. Since there is no definition of unconscionable profits, this gives the politicians great flexibility. And, because there are a number of different ways of computing profit rates, that gives them even more flexibility.

A couple of years ago, during the Anthrax scare, there were loud denunciations of Bayer, the manufacturer of the leading drug for treating Anthrax, by liberal Senators like Ted Kennedy and Chuck Schumer. They claimed that Bayer was making too much profit on that drug and should lower the price during a national emergency.

Just for the record, it would have cost 50 dollars to use the drug in question for the time it was needed, after which you could switch to other and less expensive drugs. Also for the record, Bayer operated at a loss during that quarter. When even losses are considered to be unconscionable profits, you can see how flexible these terms are in the hands of political demagogues.

No doubt Bayer was making money on that one drug but pharmaceutical drugs are a risky business, with many money-losing ventures that have to be covered by the profits on those drugs that do make money.

Ask yourself: If you had some money saved for your retirement and someone suggested that you invest it in the pharmaceutical industry, would all the denunciations of the industry by politicians, and threats to crack down with legislation, make you more willing or less willing to risk your money there?

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Put differently, how high a rate of return would you require before putting your money into most industries, as compared to how high a rate of return you would require before being willing to invest in the pharmaceutical industry? With liberals breathing fire about "unconscionable profits" and threatening punitive legislation, the pharmaceutical industry would probably have to offer you a higher rate of return before you would risk putting your money there.

You might have to make an "unconscionable" rate of return to make the risk worth taking.

You can see the same process at work in some Third World countries, where local demagogues blame these countries' poverty on "exploitation" by foreign investors and threaten to put a stop to it. Whether or not these demagogues actually follow through, such talk can cause foreign investors to stay away.

They say talk is cheap but political demagoguery can have very high costs. In the case of pharmaceutical drugs, these costs go beyond money to needless pain, disabilities and death, when the rate of new drug discovery suffers from threatening political rhetoric that discourages investment.

Now that we have talked about the dragon, what about St. George?

Proponents of government-controlled medical care point out that, despite much longer waits for many medical treatments in Canada, Canadian life expectancy is slightly higher than that of Americans. Apparently St. George is a success.

That might be decisive evidence if medical care were the only determinant of life expectancy. But even the finest medical care in the world cannot help people who are killing themselves, whether suddenly with a gun or more slowly with drugs or obesity or other dangerous lifestyles.

Americans, for example, are obese more than twice as often as Canadians and our murder rates are higher. Those who resist the idea of personal responsibility are quick to blame objective circumstances, such as medical care.

Some years ago, there were media outcries because black pregnant women received less prenatal care than white pregnant women and their infant mortality rates were higher. But Americans of Chinese, Japanese, and Filipino ancestry also had less prenatal care than whites -- and lower infant mortality rates than whites.

The effects of personal behavior cannot be ignored. Neither can the inescapable costs of medical care.

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JWR contributor Thomas Sowell, a fellow at the Hoover Institution, is author of several books, including his latest, "Controversial Essays." (Sales help fund JWR.)


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