The November issue of Reason magazine included the article below by Katherine Mangu-Ward. I think it is an excellent example of how our government can screw things ups, no matter how good the intentions.
At the end of August, the U.S. Department of Agriculture bought 11 million pounds of cheese—that’s a cheese cube for every man, woman, and child in America—in order to bail out the nation’s feckless cheesemongers.
Secretary of Agriculture Tom Vilsack touted the aid package, worth $20 million, as a win-win: “This commodity purchase is part of a robust, comprehensive safety net that will help reduce a cheese surplus that is at a 30-year high while, at the same time, moving a high-protein food to the tables of those most in need.” (Most of the federal government’s new stockpile will go to food banks.)
This bailout of Big Cheese came on top of an $11.2 million infusion earlier in the month to dairy farmers enrolled in a 2014 federal financial aid scheme. The deal comes after months of lobbying by the National Farmers Union, the American Farm Bureau, and the National Milk Producers Federation, who were too antsy to wait for their next big cash cow to come ambling in with the farm bill.
The same week, Sen. Chuck Grassley (R–Iowa) wrote a letter to the pharmaceutical company Mylan, demanding an explanation for why EpiPens, the epinephrine auto-injectors that severely allergic people carry in case of an emergency, have quadrupled in price since 2007. Grassley cited constituents paying $500 to fill their prescriptions.
Hillary Clinton issued a statement about the price increases as well: “Since there is no apparent justification in this case, I am calling on Mylan to immediately reduce the price of EpiPens.” Donald Trump used the occasion to score points, tweeting out a story about hundreds of thousands of dollars in donations to the Clinton Foundation from the disgraced company. Sen. Amy Klobuchar (D–Minn.) echoed Clinton’s sentiment in a letter to the Federal Trade Commission: Lamenting that “antitrust laws do not prohibit price gouging,” she asked the regulatory body to look into whether Mylan has used “unreasonable restraints of trade” to keep prices high.
The summer’s cheese bailout and EpiPen price scandal are ideological Rorschach blots.Where one observer sees only the evils of the profit motive, another looks at the same fact pattern and sees the perils of an overweening regulatory state.
Vox sided solidly with the profit shamers, declaring: “We are the only developed nation that lets drugmakers set their own prices, maximizing profits the same way sellers of chairs, mugs, shoes, or any other manufactured goods would.” But pseudonymous blogger Scott Alexander of Slate Star Codex responded with a tidy reverse Voxsplanation: The cronyist Food and Drug Administration (FDA) and other government forces have squelched nearly every effort to compete with Mylan’s EpiPens, distorting the market beyond recognition via a process he chronicles in painful detail.
Mylan acquired the EpiPen from Merck in 2007, by which time the product was already 25 years old, which means the question of paying back research costs was moot. In 2009, Teva Pharmaceuticals tried to enter the market—and Mylan sued. Teva managed to get its product to the FDA anyway, only to be told that it had “certain major deficiencies,” unspecified. In 2010, Sandoz Inc. tried its luck and got bogged down in the courts, where the case still dwells. In 2011, the French drug company Sanofi made a bid to gain approval for a generic, which was delayed for years because the FDA didn’t like the proposed brand name. Which brings us to this year, when Adamis decided to sell plain old pre-filled epinephrine syringes directly to patients without the fancy injector. Cue an FDA recall, on the rather vague basis that insufficient study had been done on standard administration of a drug whose medical properties have been known since the turn of the last century.
And sometimes the tangled, dysfunctional relationship between big business and big government gets even more personal. The CEO of Mylan, Heather Bresch, is the daughter of U.S. Sen. Joe Manchin (D–W. Va.), which probably makes things awkward in the Senate cafeteria. But Manchin has joined his colleagues in saying that he is “concerned about the high prices of prescription drugs,” which probably makes things awkward at Thanksgiving. Then again, Mylan spends over a million dollars a year lobbying, which likely goes a long way toward smoothing things over.
In 2014 Congress passed the School Access to Emergency Epinephrine Act, which Grassley mentions in his letter. The law, he writes, “provides an incentive to states to boost the stockpile of epinephrine at schools.” It was co-sponsored by Klobuchar, the same senator who now wants to sic the antitrust dogs on Mylan. That law was a top lobbying priority for Mylan that year, along with new rules that reduced competition for generics.
Grassley also notes that the taxpayers are picking up the tab for kids who are getting EpiPens while on Medicaid or the state-level Children’s Health Insurance Program, and he adds that some 47 states require or encourage schools and other public institutions to stock EpiPens. In other words, Congress created a huge new class of price-insensitive EpiPen customers and now wonders why the price has gone up.
Meanwhile, the prescription laws still require you to get a special piece of paper from a doctor every single time you want to buy an EpiPen. If the doctor writes a brand name on that paper, it’s illegal for the pharmacist to give you a cheaper generic.
The story of the government cheese is just as convoluted. It’s easy to be lulled by Vilsack’s sell: Helping farmers and the hungry? Sounds great! But you know what else helps move a glut of cheese off the shelves and into the hands of poor people, without requiring taxpayer dollars? Lowering the price.
That’s something the industry isn’t willing to do, and—given all the pricing rules and production quotas that have been distorting dairy markets since the 1930s—mostly can’t do. With Americans eating a record 34 pounds of cheese a year, the problem isn’t an unexpected drop in demand.The problem is a failure to allow the laws of supply and demand to function at all.
Eleven million pounds of cheese may seem like small potatoes (to mix culinary metaphors), and it is in the larger scheme of federal spending and meddling. What’s another $20 million when the debt is already $20 trillion, after all? But our typically cheerful acceptance of central control of compressed curds and injectable epinephrine shows how widespread and insidious such conditions are in our lives.
What would real free market reforms look like, and how would they come about? In this issue, you’ll read what Libertarian Party nominees Gary Johnson and Bill Weld would do in the (very unlikely) event that they won the presidency and vice presidency (page 30). Reason TV’s Jim Epstein reports on the millennial libertarian activists in Brazil who brought down a corrupt populist president (page 50). And in Detroit, an American city where public services are essentially nonexistent, we detail how residents are building DIY alternatives (page 65).
In the meantime, there is no reason to think either the tale of the EpiPens or the saga of the cheese would play out any differently under President Trump or President Clinton. Taxpayer-funded sops to farmers are as bipartisan as it gets, and there is precisely zero chance that a president from either major party would discontinue the practice. Likewise, the iron grip of the FDA on the drug approval process—and the opportunities to purchase influence in that powerful bureaucracy—will not diminish one iota, regardless of which major-party candidate becomes America’s Big Cheese in January.
Some of the people in my industry, home medical equipment (HME) dealers, think it would be a good thing if all HME dealers in the state were required to be licensed by the State of Iowa. They lobbied Senator Jeff Danielson who agreed to propose Senate Study Bill 1172 (SSB1172) which, if passed, would require such licensing. I am not aware of any patients who are calling for this. I’m not aware of any particular problems in our industry that have resulted in harm to patients. Almost all HME dealers are providers under Medicare, and Medicare requires all providers to be accredited by an independent accrediting agency. The purpose of accreditation is to help ensure that all services and products are provided in a safe and appropriate manner. It does not appear that licensing is needed for the safety of the public. Therefore, I presume that those who advocate for this bill are hoping is will help protect existing HME businesses against new competitors.
I think they learned about this political technique for protecting existing providers against competition from the orthotists, prosthetists, or pedorthists in Iowa. What’s that? You say you don’t know what an orthotist, or a prosthetist or a pedorthist is? They are medical professionals who, only a few years ago, successfully lobbied the Iowa Legislature to require a license to practice their profession in Iowa. (You’ll need to look them up.) The effect has been that many DME dealers are now prevented from selling specially fitted shoes to diabetic patients because they do not have the proper pedorthist license. I had never heard of pedorthists until we found out that we had to have a licensed pedorthist in order to continue to sell diabetic shoes. I had never heard of any complaints from the public, or of any public safety issues surrounding the sale of diabetic shoes by DME dealers. Again, I presume that the existing businesses were trying to protect themselves against new competition for DME dealers.
Professional licensing in Iowa is out of control. Any group that wants to prevent new competitors from entering their industry goes to the state to become a licensed profession. This not only needs to stop, it needs to be reversed. As the Des Moines Register has advocated, we need to go through all licensed professions to determine whether or not there is a real public safety concern that is actually solved by licensing. If not, we need to repeal the licensing requirement. If there is a real public safety need, then we need to make sure that the licensing requirement is limited to meeting that need, and that it does not go beyond that need in order to protect existing providers from competition.
It appears that those in charge of reconciling the differences between the House and Senate versions of the Farm Bill will not be doing anything to reduce the obscene amount of welfare going to farmers. Money “saved” by eliminating direct payments is being shifted towards more subsidies for crop insurance. Senator Grassley’s effort to place a cap on the total welfare payments received by any one farmer appears to have been watered down at best. Farmers have higher incomes and greater wealth than most citizens. They should pay the full cost of their crop insurance. Now, lets hope that either the full House or Senate will vote this bill down. We don’t need five more years of welfare for rich farmers.
Income inequality is not a problem in and of itself. As long a people earn their income through honest, peaceful and voluntary exchange, then there is no moral reason for our government to redistribute that wealth. What is a problem is when government places its thumb on the scale and unfairly helps the rich to get richer, or hurts the poor and makes them poorer. To the extent that a person gains wealth by unequal preferential treatment by government, it is morally correct for government to use its force to take away that wealth.
One good example of the many unfair government policies that wrongly favor the rich is the special low income tax rate on “carried interest” income earned by hedge fund managers. They call it carried interest, but it is nothing more than a bonus based on performance. In any other situation, this type of income is taxed at regular income tax rates. Somehow, hedge fund managers have sold politicians on the idea that carried interest is a special kind of income that should be taxed at lower rates. Another example is the Oil Depletion Allowance for oil companies. Another is farm subsidies for rich farmers. We do not need to raise tax rates on ordinary income, we do need to do away with the unfair preferences, tax breaks, and subsidies that go mostly to the wealthy.
A good example of government policy that hurts poor people is that of keeping interest rates low in order to prop up housing prices. If housing prices had been allowed to fall to their free market levels, housing would be much more affordable for poor people. Instead, our government tries to fix the problem that it helped to create (unaffordable housing) by giving rent subsidies to the poor – creating more dependency on government, but not fixing the underlying causes of the problem.
To misquote Walter Scott, “Oh what a tangled web we weave when first we practice to use our government to achieve social goals.” The solution to many of our economic problems today is to reduce the size and scope of our government. Many unfair crony capitalist subsidies and tax breaks exist because our government has expanded far beyond its Constitutionally limited powers. The primary just powers of government are to protect our lives, liberty and property; and to resolve disputes. The scope and powers of our current federal government are clearly way beyond the limited government that our founding fathers created. Lets start by closing unfair tax breaks and lowering spending to match.