Politics: Onward from New Hampshire

[Tyrone Slothrop]

Originally posted by sgtclub
This assumption has merit. They will not accept significantly less profit. Instead what they will do is stop or significantly decrease investing in R&D (an expense) and trim jobs to right size the operation, which will negatively effect technical progress (e.g., good luck coming up with a cure for Alzheimers). They will also be less profitable over the long haul, which will have the effect of producing less wealth for the millions of people who have invested their retirement savings through 401(k)s mutual funds, etc.

I will continue to harp on this, but there are consequences to every action that need to be considered.

What you're saying isn't rational. There's no reason for drug companies to leave money on the table, right? If what you say is try, they should be slashing R&D right now in order to pay bigger dividends to their shareholders. By this reasoning, we should get rid of anything that cuts into their profits -- taxes, etc. -- hell, we should be giving them money, in the hope that they will invest it in R&D.

Alternatively, you are just saying that because drug companies make money selling a product that's good for people, we should not do anything that limits their profits. Or the little girl gets it.

[Mmmm, Burger (C.J.)]

Originally posted by Tyrone_Slothrop
If what you say is try, they should be slashing R&D right now in order to pay bigger dividends to their shareholders.

Not necessarily. They should slash R&D only if the expected future returns to that R&D decline. Until there's some legislation that would do that, there's no reason to roll it back.

[sgtclub]

Originally posted by Tyrone_Slothrop
What you're saying isn't rational. There's no reason for drug companies to leave money on the table, right? If what you say is try, they should be slashing R&D right now in order to pay bigger dividends to their shareholders. By this reasoning, we should get rid of anything that cuts into their profits -- taxes, etc. -- hell, we should be giving them money, in the hope that they will invest it in R&D.

Alternatively, you are just saying that because drug companies make money selling a product that's good for people, we should not do anything that limits their profits. Or the little girl gets it.

I'm not sure I understand what you are saying.

[Replaced_Texan]

Originally posted by Hank Chinaski
SAM wants to extend something similar to the whole country. I was making a parellel argument using the cutoffs as an example of what would occur to most of us. Agian, I do not have much problem with providing an extended safety net. I have a problem with screwing things up for the vast majority of the country.

If something similar was extended to the whole country, again, the middle class would not be impacted because they'd be getting health insurance through their employers.

Incidently, did you ever read the Clinton plan? You'd be shocked, shocked! I say, to find that a hell of a lot that was in that plan is currently in effect. Portability (HIPAA), presecription drug benefits (MPDIMA), patients' rights (HIPAA), public health initiatives (look at how the tobacco settlement money was spent), universal health coverage (well, only for kids, but CHIP is pretty impressive coverage considering what was there before), increased oversight by the government (HIPAA (again) and Omnibus Reconciliation Act of 1997 in the form of fraud and abuse investigation). The "alliances" between employers that help ration health care? Check out the structure of a lot of the HMOs out there.

[sgtclub]

Originally posted by Mmmm, Burger (C.J.)
Sure, but your assumption is that prices for drugs are currently at their optimal level. (By optimal I mean welfare maximizing, and that includes both producer and consumer surplus). They are not. Let's put aside the cross-border-subsidies and look just at the US. Each drug manufacturer charges a monopoly price for its drug. Right there, you've lost consumer surplus and create dead-weight loss.

Not sure I agree with this, other than in cases where there are no drugs competing with the manufacturer's or the patent has not expired.

Originally posted by Mmmm, Burger (C.J.) But we can, because of the degree to which medicine is generally subsidized in this country. If people were forced to pay their own medical bills, do you honestly believe that 1/7 of all spending would go to medicine? No chance (and that's true even if wealth is distributed more fairly). Every insurance plan creates gross overincentives for treatment, either through testing or drugs, neither of which would happen if the full price were paid by the consumer (e.g., I recently went for a $2500 PET scan "just to rule out any possibility" of a certain disease. I paid a 10% copay, which meant I didn't question the need for the test at all). So, drug makers also benefit from artificially inflated demand induced by subsidized products.

This is a great point, though I don't believe it undercuts mine. I assume you are in favor of HSA and the expansion thereof?

[Mmmm, Burger (C.J.)]

Originally posted by sgtclub
Not sure I agree with this, other than in cases where there are no drugs competing with the manufacturer's or the patent has not expired.

Have you looked at the pricing studies? There's basically no profit in generics (other than for a few months) or where there's sizable competition. THey make almost all their money off of the patented drugs with some form of exclusivity. So you're sort of disregarding 95% of what matters.

[Replaced_Texan]

Originally posted by Tyrone_Slothrop
What you're saying isn't rational. There's no reason for drug companies to leave money on the table, right? If what you say is try, they should be slashing R&D right now in order to pay bigger dividends to their shareholders. By this reasoning, we should get rid of anything that cuts into their profits -- taxes, etc. -- hell, we should be giving them money, in the hope that they will invest it in R&D.

Alternatively, you are just saying that because drug companies make money selling a product that's good for people, we should not do anything that limits their profits. Or the little girl gets it.

Speaking of R&D, did anyone see this article about stem cell research and the United States is losing its edge?? I know a few physicians at the Texas Heart Institute that have to fly to Brazil once or twice a month to do their research because it is not allowed in the United States.

[sgtclub]

Originally posted by Mmmm, Burger (C.J.)
Have you looked at the pricing studies? There's basically no profit in generics (other than for a few months) or where there's sizable competition. THey make almost all their money off of the patented drugs with some form of exclusivity. So you're sort of disregarding 95% of what matters.

Huh? My point was going to your monopoly pricing point. You are also failing to consider that 2 patented drugs made by different companies often are in competition with one another.

[Hank Chinaski]

Originally posted by Tyrone_Slothrop
What you're saying isn't rational. There's no reason for drug companies to leave money on the table, right? If what you say is try, they should be slashing R&D right now in order to pay bigger dividends to their shareholders. By this reasoning, we should get rid of anything that cuts into their profits -- taxes, etc. -- hell, we should be giving them money, in the hope that they will invest it in R&D.

Everyone running a company with shareholders recognizes this choice occurs over and over. When your firm buy new computers it limits what profits the shareholders make that month. When GM hires someone to design a car for 5 years from now, it limits what it can pay as share dividends. Drug companies just have a higher investment %. you need to invest for next year's product Ty.

[Atticus Grinch]

Originally posted by sgtclub
I'm not sure I understand what you are saying.

Board motto!

[Atticus Grinch]

Originally posted by sgtclub
This is a great point, though I don't believe it undercuts mine.

Even better! Keep 'em coming!

[The Larry Davis Experience]

Originally posted by Hank Chinaski
now you are ready for the red pill. About a year ago both Fluffy and I laid out in reasoned details the support for invading Canada. The time is now, the challenge one we cannot shirk.

Wait a minute. I thought your tenure began after Fluffy's ended. Now I have to go redo all of my charts. Dammit.

[Mmmm, Burger (C.J.)]

Originally posted by sgtclub
Huh? My point was going to your monopoly pricing point. You are also failing to consider that 2 patented drugs made by different companies often are in competition with one another.

Right, and so was my response. If you look at the profits derived from production of pharmaceuticals, an outsized portion come during the window of exclusivity that either patents, FDA approval, or both provide. As soon as there's generic entry, the profits go way down. To barely profitable levels. So the point is that drug cos. get nearly their entire return on R&D for a given drug (plus the costs of the 100 failures) during a narrow monopoly opportunity. But that monopoly price is not "efficient" in an economic sense, because it's a monopoly price and there's deadweight loss in nearly every monopoly situation.

[Tyrone Slothrop]

Originally posted by Mmmm, Burger (C.J.)
Not necessarily. They should slash R&D only if the expected future returns to that R&D decline. Until there's some legislation that would do that, there's no reason to roll it back.

That was my second point. I still can't figure out what sgtclub is trying to say. If his point is that you shouldn't do anything to reduce pharma's profits now because then they'll invest less money in R&D, that's wrong, because the investment in R&D is a function of its expected return, as you say. If his point is that you shouldn't do anything to reduce pharma's expected long-term profits, because we want to encourage as much R&D as possible, then he's saying that what's good for pharma is good for the country. But I didn't hear him making the second point, nor do most people, although the spirit clearly animates Republicans in Congress. If you believe that, you also believe that we should be giving pharma buckets of money, as the GOP evidently would.

As you suggested, it's Econ 101 that monopoly pricing should be regulated to maximize social utility. Not clear that this maximizes campaign donations, which some may feel is a fair proxy for social utility.

[sgtclub]

Originally posted by Mmmm, Burger (C.J.)
Right, and so was my response. If you look at the profits derived from production of pharmaceuticals, an outsized portion come during the window of exclusivity that either patents, FDA approval, or both provide. As soon as there's generic entry, the profits go way down. To barely profitable levels. So the point is that drug cos. get nearly their entire return on R&D for a given drug (plus the costs of the 100 failures) during a narrow monopoly opportunity. But that monopoly price is not "efficient" in an economic sense, because it's a monopoly price and there's deadweight loss in nearly every monopoly situation.

I agree with most of this, but would agrue that the recoupment during the monopoloy period for R&D costs and the 100 failures is the most efficient way for the company to recoup those costs, realizing that the pricing may not be the most efficient for the consumers if there are no other alternative drugs to chose from. Are you are saying that the company could charge significantly less, still recoup costs, and make a competitive profit? If so, I would be skeptical.