Charles Murray's Coming Apart discussed by David Brooks and W. Bradford Wilcox
A Bunny Ranch Endorsement for Ron Paul

An Artificial Shortage

Jonathan B. Wight

What do you get when you mix pharmaceutical markets with government mandates?

Answer: Don't ask—you don't want to know.

The FDA has a role of protecting consumers from harmful drugs. But as Ronald Coase pointed out, there is asymmetry in the agent's incentives: FDA administrators only get fired for letting a drug through that turns out to hurt a patient. Administrators never get punished for curtailing drugs that might have saved many lives, since consumers never know about those potential gains and only focus on the known losses.

The FDA is also in conflict with the Drug Enforcement Agency (DEA). The DEA wants to crack down on illegal users of attention-deficit (ADHD) prescriptions (e.g., college students getting high or boosting concentration). So the DEA responded to this problem by setting quantitative production limits on ADHD products in a market facing rapidly rising demand. What do you expect to happen?

Not surprisingly, the New York Times reports that "F.D.A. Finds Short Supply of Attention Deficit Drugs," especially in the generic drugs that many low-income patients rely on. If quantitative limits are placed on production output, pharma companies will make only the most profitable pills, which means they produce patent-protected name brands; generic versions will not get made. The article reports on the hardships of patients and doctors in this predictable situation.

A similar policy failure occurred in the early 1980s, when Ronald Reagan "asked" Japanese automakers to impose voluntary quantitative export limits on their cars to America. The result was that the Japanese stopped selling as many cheap cars that competed against Ford and Chevy, and began exporting more of their higher end cars. Thus began the rise of the Japanese luxury brands, to overtake Cadillac and Lincoln. Hence we see the iron rule of unintended consequences: A law designed to help American automakers… resulted in the demise of their most profitable brands. And similarly with the DEA's quantitative restrictions: a law designed to help American consumers… may end up hurting them.

A separate conversation is whether Americans' propensity to treat every problem with a pill makes sense. We are likely way over-dosed.

[Thanks to my colleague Maia Linask for recommending this article.]


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