GOPideas... ideas done right

In any debate concerning the allocation of resources there are two types of wealth transfers that occur: implicit and explicit. The explicit resources transfers are easiest to identifiy and thus get the most media attention --- but implicit taxes are just as costly. Taxes and regulation are the two explicit ways politicians pay for their promises. For example, Medicaid is paid for directly by payroll taxes --- and pays for the health insurance costs for people that are too poor to purchase health insurance. However, implicit taxes also drive costs higher: ever wonder why you need to fill out multiple forms at the doctor's office, see four different nurses (all of who ask your name and vitals) beofre beginning a procedure or why pharmacists are paid big money to (mostly) count pills? The answer is regulations and fear of litigation force health care providers to allocate funds for compliance --- or to mitigate the risk of lawsuits.

Bernie Sanders argues that health care is a right and that Americans should be enlightened enough to agree with our European bretheren and provide it to our citizens. However, what he fails to recognize is that Europeans can allow high quality health care to be a right specifically because high quality health care is a privilege in the United States.

Europeans can provide this care because they are "free riders" and rely on the United States market to provide the funds that allow companies to invest in the research and development necessary to improve care. For example, pharmaceutical price controls are an implicit tax on Americans because countries that impose them allow their populations to have access to these drugs without paying for their full share of the costs of development. Two solutions exist: impose price controls in the United States (or allow for implicit price controls by allowing reimportation; i.e. Americans would be able to gain the advantage of foreign price controls) or force countries with price controls to bear the full costs.

Price controls would pull significant money out of the system, curtailing the funding upon which future advances rely. This would also be harmful at a time when we allegedly want to encourage more people to go into science and technology. This leaves forcing countries to pay their fair share, which would be in the best interests of American consumers, but would not be supported by drug companies or foreign governments --- and would potentially initiate a trade war.

The reason why neither the companies nor the foreign governments would desire this is rooted in the difference between fixed (in this case, these costs are sunk costs as well) and marginal costs. Once a pharmaceutical company develops, tests and begins production of a drug, the cost of producing that drug is near zero (ever wonder why Wal-Mart can offer perscriptions at $4 while still maintaining quality?). Thus, if the companies' can recoup their costs in the US, selling the drug in a country with price controls is the economically rational behavior because the cost is funcationally zero and any revenue is gravy.

By not attacking these price controls (unfair trade practices) the United States allowed the practice to be established --- meaning that any attempt to reregulate would likely cause objections and a trade war. Thus, Republicans should allow the Europeans to choose: either allow the market to set the price for drugs and other medical technology in Europe or face similar price controls on goods imported into the US. If they choose the former, we'll soon see how "enlightened" the European health care system is as government bugets would either be busted --- or almost all care denied. If the latter --- Mercedes for everyone!

Comments are welcome, but for the comment to post to the public, you must supply an email address (this is to avoid spam comments). The email address will not be posted publicly and your email address will not be shared, sold or disclosed.