Thursday, July 14, 2005
Price Controls & Cheap Canadian Drugs
Price Controls & Cheap Canadian Drugs
Most people know prescription drugs can be purchased more cheaply in Canada than in the United States but either don’t want to know why or simply don’t care as long as they’re cheaper. Due to the recent veiled threat by the Canadian Government to outlaw selling to Americans due to a concern about a shortage it is time to review the fallacy of price controls one more time. When the government sets the price of a commodity below market price level two things happen. Because the price is artificially low people buy the commodity and either sell it where price controls don’t exist or consume it. This demand for the commodity puts a strain on the producers because they are producing at the same costs as their free market competitors but are operating at a lower ( or non ) profit margin. A producer able to make more money on a commodity will be able to update his machinery, increase his capital investment, spend more on marketing and in effect become a more reliable supplier. Meanwhile the producer shackled by price controls can only cut costs until he is running a bare bones operation and either losing money or barely breaking even. With this for an incentive his production and quality must suffer. Now if he is buying from a free market producer and selling under price controls that require him to lose money he will ultimately have to go out of business. This is what the Canadian Government is discovering the hard way.
Now this knowledge about economics is not new. There are documented failures of price controls dating back forty centuries. But just as there are con artists in all endeavors who try to scam instead of produce the political arena is no exception. People who lobby for what they perceive is in the interest of their constituents ( like those who champion political pressure groups like AARP and multitudes of governmental representatives ) should spend more time learning about how economics works and less time promising things they cannot deliver. But since they can’t and won’t they need to be exposed for their lack of training and/or interest in the truth. Pointing fingers and passing more laws has not and will not create prescription drugs but only aggravate the shortage. Look at the price of computers and how there is an abundance at lower and lower prices and imagine what would be the result if the government told computer producers they could not charge over $20.00 for their product. There would be a big rush to get the cheap computers, there would then be a shortage of computers and then there would be rationing and then computers would be only available to those with political connections. Sound familiar? This is what happens to all price control schemes and Canadian drugs are no exception.
Most people know prescription drugs can be purchased more cheaply in Canada than in the United States but either don’t want to know why or simply don’t care as long as they’re cheaper. Due to the recent veiled threat by the Canadian Government to outlaw selling to Americans due to a concern about a shortage it is time to review the fallacy of price controls one more time. When the government sets the price of a commodity below market price level two things happen. Because the price is artificially low people buy the commodity and either sell it where price controls don’t exist or consume it. This demand for the commodity puts a strain on the producers because they are producing at the same costs as their free market competitors but are operating at a lower ( or non ) profit margin. A producer able to make more money on a commodity will be able to update his machinery, increase his capital investment, spend more on marketing and in effect become a more reliable supplier. Meanwhile the producer shackled by price controls can only cut costs until he is running a bare bones operation and either losing money or barely breaking even. With this for an incentive his production and quality must suffer. Now if he is buying from a free market producer and selling under price controls that require him to lose money he will ultimately have to go out of business. This is what the Canadian Government is discovering the hard way.
Now this knowledge about economics is not new. There are documented failures of price controls dating back forty centuries. But just as there are con artists in all endeavors who try to scam instead of produce the political arena is no exception. People who lobby for what they perceive is in the interest of their constituents ( like those who champion political pressure groups like AARP and multitudes of governmental representatives ) should spend more time learning about how economics works and less time promising things they cannot deliver. But since they can’t and won’t they need to be exposed for their lack of training and/or interest in the truth. Pointing fingers and passing more laws has not and will not create prescription drugs but only aggravate the shortage. Look at the price of computers and how there is an abundance at lower and lower prices and imagine what would be the result if the government told computer producers they could not charge over $20.00 for their product. There would be a big rush to get the cheap computers, there would then be a shortage of computers and then there would be rationing and then computers would be only available to those with political connections. Sound familiar? This is what happens to all price control schemes and Canadian drugs are no exception.
