We all have our issues, but the personality of the Trump administration might need some professional help. Granted, I am hardly the first one to observe this.
One minute, they are all excited about something — like calling Sen. Ted Cruz “Lying Ted.” The next moment, they are calling him “Beautiful Ted.” This week has been no different.
On Tuesday, I received an amazing email from the administration that had a paper attached detailing all of the troubles that accompany socialism. Then, on Thursday, President Trump announces that he is going to implement price controls (socialism) on prescription drugs.
First off, let me cede that it can be hard to define the line between socialism and traditional, appropriate government intervention. Somebody like Sen. Bernie Sanders has a fairly extreme version of socialism in mind when he talks about it. But when most people in the country discuss socialism, they are likely to think of it as capitalism-lite, or capitalism without the hard edges: like West Germany but never like East Germany. For the sake of this discussion though, I will just use the words from the administration:
The key portion of the paragraph is that “prices reveal economically important information.” However, President Trump’s announcement on drug prices rejects that economic theory and inserts his own populist agenda. Trump’s plan includes a new “international pricing index” where U.S. drug prices would be bench-marked against 16 other nations with varying degrees of centrally-planned healthcare.
The problems with this proposal are numerous, but let’s start by saying price controls are never good. Once the government decides that one price level is more moral than another, where does the conclusion stop? Cars? Houses? Food? Gasoline? And why these 16 countries? Do we want an economy that looks more like the economies of the Czech Republic, Greece, Ireland, or Slovakia?
The problem with populist agendas is that they often receive support upfront — everyone wants cheaper prices — but they ignore the way that markets function. Drug companies set prices the way that everyone sets prices: in accordance to the market. However, after they set their prices, other layers start creeping in to complicate what should be a simple transaction.
A recent study (conducted for the Pharmaceutical Research and Manufacturers of America) showed just how out of control that these layers can get.
We found that, on average, hospitals charge 479 percent of their cost for drugs nationwide. This matches closely with the findings from our prior analysis. Most hospitals (83 percent) charge patients and insurers more than double their acquisition cost for medicine, marking-up the medicines 200 percent or more. The majority of hospitals (53 percent) markup medicines between 200-400 percent, on average.
Those price increases were just the average. Some of the hospitals (17 percent) in the study raised the prices on their pharmaceuticals 700 percent. It would be mind-blowing even if it stopped there, but there are other problems with the market. Like in any healthcare market, minus a few free-market revolutionaries in the industry, in pharmaceuticals there are an amazing array of government regulations, subsidies, third-party payers, and middlemen who drive up costs.
Taking on these subsidies, third-party payers, and middlemen could significantly lower the costs. However, those policies are boring. They don’t make the headlines that “price controls” produce. Real reform would mean real work. Instead, the Trump administration is happy with its schizophrenic public comments and pursuing policies that even they admitted days before would stymie innovation and remove market indicators that help a functioning economy work.
With no disrespect to Sen. Cruz, I hope that President Trump and his administration go back to their “Lying Ted” days when they were focusing on pro-growth economic policies. The World Economic Forum recently ranked the U.S. as the top economy in the world, and the Federal Reserve credits last year’s tax cuts with the recent burst in economic growth. Trump has been cutting regulations at a pace that has President Ronald Reagan resting comfortably in his grave (or whatever the opposite of spinning is).
There is so much the Trump administration could do to help reform drug prices and grow the economy without also pursuing a socialist pricing agenda.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.