You Misunderstand Me

At last we have an answer to the burning question: Since Megan McArdle says that her only objection to reforming health insurance is the concern that lower drug prices will destroy medical innovation, how will she address the fact that drug companies support reforming health insurance? Now we know; McArdle will accuse the Obama Administration or some other liberal administration of coercing the drug companies, will move the goalposts, and will claim she was misunderstood.

McArdle ignores what PHaRMA actually says about health care reform to accuse liberals administrations of plotting to take over drug companies.

The political logic of pharmaceutical price controls is nearly overwhelming. You have a product that has a very low marginal cost and a very high fixed cost, which means that you can force them to provide it cheaply and eat the fixed costs if you have enough market power. You've got program that is rapidly turning into the sucking chest wound of the US budget. And you've got a big line item supplied by companies that are unpopular--unlike the other major players in the system, like doctors, nurses, assorted health care workers, and the local hospital. This is why most of Europe has turned to some form of price controls.

[yip yip yip]

[P]rice controls are a feature of national health insurance schemes, just as log-rolling is a feature of democracy. We might hold out for a while. But eventually, we'd have a combination of populists in office and a budget problem, and the pharma profits would go.

Note that McArdle does not directly address the response to her claim that drug companies make 80% of their profits from the US and could not innovate (or, by implication, even exist) if the US enacted national health insurance, which would lead us down the slippery slope to national health care. She simply reiterates that a liberal government will impose price controls on drug companies and that they will no longer be able to innovate.

Next McArdle states that she is misunderstood, a well that she's visited many, many times before. Her critics haven't destroyed her arguments with facts, they've misunderstood the argument she was actually making because they just don't "grok" libertarianism. It's all in the brain, man, just like fat is all in the genes. She does this to throw up some smoke while she moves the goal posts over to the next county.

[...T]his is where I realize that liberals often really just do not grok what libertarians are about. For them, this is a battle between people who like health care companies, and want to defend them, and people who like the government. But I don't care about the pharmaceutical companies qua pharmaceutical companies. The pharmaceutical companies are interested in what is good for pharmaceutical companies. I am interest in what is good for society.

I am not under the delusion that those are necessarily the same thing.

Except she just said that they were the same thing. We need cures for diseases, the drug companies who make a lot of many come up with the cures, so we need to ensure that drug companies make lots and lots of money.

"What's good for General Motors is good for America" was a Great Society slogan, not a libertarian, or even a conservative one.

Actually, that's a misquote of something a GM president said to Congress, when he was testifying that he could be an impartial Secretary of Defense. It is most certainly not a Great Society slogan, but attention to detail and accuracy are not McArdle's strengths.

Right now, pharmaceutical companies spend a great deal of effort on innovation because they have to in order to survive. But if survival means ditching the R&D labs and churning out low-cost copies of things they've already invented, then I'm pretty sure that's what they'll do. To paraphrase Adam Smith, it is not to the benevolence of pharma that I look, but to its self interest. In the current system, that self interest means inventing new drugs.

In other words, I'm not in favor of business. I'm in favor of competition.

Oh, now it's competition that is the only thing that counts, not innovation. So are drug companies competing to see who can get the next blockbuster drug first? Or are drug companies competing who see who can make the most money and therefore do the most innovation? Either way, the drug companies will no longer innovate if we have national health, presumably because they will not be making all that money anymore. So we are left with the same unsupported opinions that McArdle has suggested all along--innovation depends on American drug companies making as much money as possible. If the drug companies say something different they are doing so not to benefit in some way, they're doing it because the government takeover of drug companies is inevitable. Never mind that nobody is suggesting or trying to implement national heath! Forget that she is making no sense at all and ignores what PHaRMA is actually doing--getting everything it wants and giving up very little.

If you want to know what PhRMA is getting this time, [Harvard Medical School professor Jerry] Avorn says just look at what's not on the table during the debate:

Drug re-importation from Canada? Off the table.

Government-negotiated drug prices? Off the table.

"A lot of those seem to have been resolved even before the public discussion begins," says [Harvard professor of medicine Jerry] Avorn. "And usually, as with the other interest groups involved, they seem to have been resolved in favor of the interest groups, rather than in favor of the public."

There's something else drug companies bought with that $40 million: people.
PhRMA alone has 29 people lobbying for it. In the graphic on this page, you can dig into the reports, and you'll find that PhRMA also hired 45 different Washington, D.C., lobbying firms to represent it in those three months of the second quarter.

Most of the drug companies that belong to PhRMA are running their own lobby shops as well, plus the biggest ones have also hired dozens of D.C. lobbying firms.

So think about it this way: There are far more people in Washington representing one party of the debate — the big drug companies — than there are members of Congress working on the health care bill.

More reality to ignore, as McArdle speculate as much and as darkly as possible, setting up impossible goals and improbable futures, ignoring facts and using cheap rhetorical tricks to paper over the emptiness of her arguments.

McArdle actually takes the arguments of the other side and attempts to us it against them. The decrease in innovation, the spiraling costs of R&D, these are now her weapons. This is what will happen to you, she threatens, utterly ignoring reality in her attempts to twist the argument to use her opponents' concerns against them. It's so stupid it's laughable.

But now she has a new talking point to argue, coincidentally the exact same one that a right-wing shill is talking up on CNBC as I type this post.

Government intervention in markets tends to dampen competition, which is something that executives like; I'm sure that's one reason that they're getting with the program. Too, administration has made it clear that they intend to do this deal with pharma or without them; they're trying to negotiate a surrender on the most favorable possible terms. But while I'm sure this is good for Obama, and I think it may even be good for pharma, I don't think this will be good for us. Companies cut deals with government all the time, and they rarely, in my opinion, redound to the benefit of the American people.

The benefits of competition are, incidentally, why I don't think that the defense model of innovation works very well in the pharmaceutical or medical technology industries. To start with, military procurement is a massive jobs program. Congressmen rarely take much action on behalf of their unemployed chemists.

But more importantly, military spending is competitive--even now, we're mostly doing this because we want to maintain our military primacy. Pharmaceutical technology is just not competitive that way. Nations don't really compete on their health care systems, and anyway, if we develop a drug, it will be patented abroad, and everyone will get it. Also, we're not all that worried that the French health care system will come over here and kill us.

I'm not sure the cognitive gap between liberals and libertarians can be bridged. At the very least, as long as they think of us as defending corporate interests, rather than defending a system that most often aligns corporate interests with ours, everything we say will continue to seem vaguely puzzling.

So drug companies are not meeting behind doors with the Obama administration, working out a private deal that will benefit them, as they did with Bush and Medicare and no doubt every other administration and issue that has affected them. They spend millions lobbying and donating to Congressmen yet it is inevitable that the same people will destroy their ability to make money. They are bowing to the inevitability of an event that is not even on the table at this time, and giving in without a fight. The goal posts have been moved and now we learn that the problem is competition, and the drug companies have been fooled into thinking that national health care will destroy their enemies while not harming them, while at the same time thinking that it is inevitable that they will be forced to capitulate to government take-over and inevitable destruction. It doesn't make the slightest bit of sense, of course, but rest assured. It's not that McArdle is wrong. You just misunderstand her.