Fantasy pharma

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The left, of course, has its own fantasy solution set: drugs should be both innovative and cheap.

But clinical trials for a single successful drug cost $500 million, and not because the labs have outrageous administrative overhead. Even if the government were in charge of running them, they would still be on the hook for that $500 million, which would have to come out of taxes. We can get existing drugs on the cheap by essentially stealing the property of shareholders in drug firms, who risked a lot of money on drugs that they reasonably expected to be profitable under existing laws. But that's a one-trick pony. We cannot get new drugs at bargain basement prices.

Many people are holding out the hope that the government can somehow substitute for the pharmas, bolstered by the ludicrous claim that the government really discovers all the drugs. This is arrant nonsense; government-funded research discovers targets that might someday turn into drugs, if the Big Pharma chemists can: find a molecule synthesis can be economically mass produced; keep the molecule from killing rats, mice, dogs, or humans; get the molecule into a form that does not have to be directly injected into the bloodstream; tweak the molecule so that the liver doesn't immediately chew it into pieces that no longer affect your target; and shepherd the entire thing through years of clinical trials. That's just off the top of my head; research chemists will undoubtedly have more.

There is no evidence of a nationalized industry that consistently does cost effective innovation. Yes, you have a list of things invented by the government--but that number is a small fraction of a fraction of one percent of the number of things in the private sector. If the universe of products were your house, the government would have invented one washer inside the tap of your bathroom sink; the private sector would have developed every other thing you use. Even where the government is given credit for "inventing" something, such as DARPANet's invention of the internet; it turns out that 99% of the process of actually turning it into a product that was useful to end-consumers was handled by private actors, most of them corporations like Netscape, Microsoft, and AOL.

This is why when you start to make a list of all the state-run economies that have produced large numbers of innovative products with a high level of consumer satisfaction, you have to throw your privately manufactured gel pen aside in disgust. For whatever reason, the government is just not good at producing innovation.

Before you say it, I know that you are leaning forward in your chair, your eyes alight, preparing to demand "What about the military?!" and lean back triumphantly in your chair. My friend, have you ever taken a close look at the military procurement process? It costs a fantastic amount of money to generate products that often aren't even wanted by the end users--how many times have you read about some military service being forced to buy some gargantuan piece of equipment they don't want because the thing is being manufactured in a key congressman's district? This is how we spend four percent of our national income on something that most of the American public never sees. Forgive me if I'm not excited about applying the same process to health care.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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