By Phil Kerpen
Is government-facilitated re-importation of prescription medicines from Canada – a policy now supported by politicians as diverse as President Donald Trump and Senator Bernard Sanders – an issue of free trade, or a backdoor method of imposing price controls? That's the way the question is usually framed in policy debates, but the great Nobel prize-winning economist Milton Friedman took a third view.
"The issue is patents," Friedman explained in a 2004 interview with Jim Glassman that can now only be found in the Internet Archive. "The issue is a government-granted monopoly and whether that, how extensively the rights that are granted for that purpose extend. The real issue is not really re-importation. The real issue in my opinion is the Food and Drug Administration. The FDA in the United States has followed policy, which means that it costs roughly $800 million to bring a single new drug entity to the market."
That figure has only climbed since, and now stands at over $2.6 billion according to a widely cited estimate from Tufts University that itself is now a few years old and therefore likely a lowball.
"And the question is where is that $800 million going to come from?" Friedman continued. "The answer we have given is that it's going to come by giving the producer of the drug a patent, a monopoly privilege to sell that drug, to exclude others from the sale of that drug. And the question is, are you going to enforce that exclusion? The only way in which that $800 million can be raised is by charging very high prices to some people. Now, the question is given that you're charging those high prices to some people, is it okay to charge low prices to some people? This is a standard case of a monopoly which engages in price discrimination as a way of maximizing its income. It charges high prices where the elasticity of demand is low, it charges low prices where the elasticity of demand is relatively high to the citizens of other countries."
In other words, the company that invests the exorbitant cost of developing a new drug is incentivized to do so by the prospects of securing a United States patent that will exclude anyone else from selling the drug in the United States for a period of time. That exclusive right provides the mechanism for the innovator to recover the cost of developing the drug and return a profit to its investors. When foreign countries, including Canada, suppress prices through government price control policies, drug companies may still choose to sell at those lower prices to maximize their income.
While higher prices abroad would incentivize more research and development and more cures – and we should continue to work hard in trade negotiations to loosen price controls abroad – as long as foreign governments set prices above marginal cost, it is in the interest of drug companies to take the additional profit on top of their...
By Jon Decker
This week President Trump took a well-deserved victory lap for all the work his administration has done to promote the development of America's energy resources. As President Trump noted in his speech, "We’re unlocking American energy, and the United States is now a net exporter of clean, affordable, American natural gas. We’re exporting all over the world." But it's not quite all over the world; while natural gas production has reached record highs under President Trump, there is one place where the U.S. isn't exporting LNG that provides Trump with an opportunity to further strengthen America's energy dominance: Puerto Rico.
Strange as it may sound, the United States does not export natural gas to one of its own territories. As my colleague Phil Kerpen explained at CNS News:
Ships are leaving American ports loaded with LNG for countries all over the planet, but they cannot deliver to Puerto Rico, specifically because it is part of the United States. The 1920 Jones Act restricts the transportation of cargo between two American ports to ships that are U.S.-built, U.S.-crewed, U.S.-owned, and U.S. flagged. However, as the government of Puerto Rico noted in its waiver request:“of the 478 LNG carriers that currently exist in the world, none are Jones Act eligible.” Thus, without a waiver, Puerto Rico simply cannot transport American LNG to Puerto Rico.
In a nutshell – a law dating back to prohibition prevents states from selling natural gas to Puerto Rico, and forces the island to buy gas from foreign competitors to our domestic LNG industry.
Thankfully, there is a simple fix to this badly outdated law. President Trump could grant Puerto Rico a waiver from the Jones Act that would allow residents to import cleaner, more affordable energy. It was also provide a meaningful boost to the island's economy as it continues to rebuild from Hurricane Maria.
It is time to put 'America First' by allowing Puerto Rico customers to purchase natural gas from places like Texas, Pennsylvania, and Ohio. President Trump's administration should jump ship on the Jones Act and expand America's energy boom.
Photo Credit: Brad Clinesmith from Wilkes-Barre, PA
By Phil Kerpen
Just a decade after Democrats steamrolled Republicans and public opposition to upend the American health care system, they are ready to move on to the next phase on their plan to force every American into a government-run health care plan. Some of them, led by Bernie Sanders, Elizabeth Warren and Kamala Harris (about half the time—she flops like a fish), openly advocate banning private health insurance (except for "supplemental coverage," meaning cosmetic surgery) and immediately forcing everyone into a government plan. That's what the "Medicare for All" bill in Congress would do. Others, led by Joe Biden, adopt a more subtle path to destroying private insurance developed by Yale professor Jacob Hacker called the "public option" – alternately called a "Medicare buy-in" or "Medicare X."
The "public option" strategy for ending private insurance is to set it up in a rigged competition with a government-run plan that can absorb losses indefinitely and can use the power of government to dictate below market prices to doctors and hospitals. Simultaneously, private plans would be subject to regulations by the same government that is competing with them.
Americans would have the illusion of choosing to keep their private insurance for a while, but would all eventually end up in the single payer government plan.
Some have said that makes the public option a Trojan Horse for single payer, but Professor Hacker, the inventor of the plan, disputed that characterization to a 2008 audience at the liberal Tides Foundation: "Someone once said to me, 'Well, this is a Trojan horse for single payer.' I said, 'Well, it's not a Trojan horse, right? It's just right there! I'm telling you!'"
Hacker tried strenuously to walk those comments back ever since.
But third-tier presidential hopeful Kirsten Gillibrand said it again at the Democratic debate: "We put into the transition period for our Medicare for All Plan. I believe we need to get to universal healthcare as a right, not a privilege to single payer. The quickest way you get there is you create competition with the insurers... So, what will happen is people will choose Medicare. You will transition. We would get to Medicare for All. And then your step to single payer is so short."
Pete Buttigieg agreed with her, adding: "Now here’s how I would do it. It’s very similar... People can buy in, and then if people like us are right that that will be not only a more inclusive plan, but a more efficient plan than any of the corporate answers out there, then it will be a very natural glide path to the single payer environment."
Biden reiterated his support for the "public option" at the debate when he called it adding a "Medicare like plan" to the Obamacare exchanges – as his campaign had tweeted the night before during the undercard debate: "The Biden Administration will give every American the right to choose a public option."
Notably, unlike his opponents who endorse the identical policy, Biden is...
By Phil Kerpen
Puerto Rico is rebuilding its electrical grid, which was severely damaged by Hurricane Maria. This process includes converting antiquated oil-burning power plants to natural gas, which will result in enormous savings in fuel costs and significant environmental benefits. With American energy production booming thanks to President Trump’s American energy dominance agenda, Puerto Rico should soon be in a position to use American natural gas – but that win-win outcome will require the president to grant Puerto Rico’s request for a waiver from a World War I era law called the Jones Act.
The Jones Act requires movement of goods by water between points in the United States only by means of vessels that are U.S.-built, U.S.-owned and U.S.-crewed. There are no such vessels capable of transporting LNG in bulk from U.S. sources to Puerto Rico. So, without a waiver, Puerto Rico will have to buy the natural gas to run its power plants from more expensive foreign sources, reducing the economic benefits for ratepayers and enriching foreign rather than American producers. It makes no sense.
Liquefied natural gas (LNG) exports from the United States are booming, and, in 2017, after 60 years of being a net importer of natural gas, we became a net exporter. Ships are leaving American ports loaded with LNG for countries all over the planet, but they cannot deliver to Puerto Rico, specifically because it is part of the United States. The 1920 Jones Act restricts the transportation of cargo between two American ports to ships that are U.S.-built, U.S.-crewed, U.S.-owned, and U.S. flagged. However, as the government of Puerto Rico noted in its waiver request: "of the 478 LNG carriers that currently exist in the world, none are Jones Act eligible." Thus, without a waiver, Puerto Rico simply cannot transport American LNG to Puerto Rico.
It is unlikely that an American company will build a Jones Act eligible LNG carrier. As Cato Institute analyst Colin Grabow has noted, the economics simply are not there because building an LNG carrier in a U.S. shipyard would cost triple what it costs to build in other jurisdictions, such as South Korea. The Government Accountability Office found that, because no LNG carrier has been built in the U.S. since 1980, a U.S. shipyard undertaking such a project would have to bring in foreign labor, specifically "250 to 300 skilled Korean workers for the duration of the build time to ensure the work is done correctly."
In the absence of a waiver, natural gas exports to foreign markets will keep booming, but Puerto Rico, an American territory, will be left out and forced to buy more expensive LNG from Trinidad and Tobago and possibly Russia. Puerto Rico would have to pay around $100 million per year more for the privilege of purchasing foreign natural gas.
The opposition to granting this limited waiver to the Jones Act is being advanced by members of Congress who represent shipbuilding interests. Shipbuilders have long feared that any...