Economics Archives

The Free Market Wins Again

If you know the name Martin Shkreli, it’s likely because news stories about his popped up on your Facebook or Twitter feed. I saw articles about him from folks who don’t usually post about current events, but what he did had many people in an uproar.

He was criticized last month after his Turing Pharmaceuticals company announced an increase in the price of Daraprim from $13.50 to $750 per capsule after buying the rights to sell the drug. Daraprim is the only approved treatment for a life-threatening parasitic infection. Many of my more liberal friends used this to “prove” that the free market has failed, and that government must step in to assure affordable medicine for all. The uproar caused Shkreli to reconsider the price hike.

I came somewhat to his defense, noting that the reason he was able to acquire the rights to the drug was because the previous company wasn’t making a profit. So instead of those needing the drug being left high and dry, someone with enough money to do so kept it from going away entirely. Clearly the previous company didn’t price it well enough to keep it around, so an increase was inevitable. But I, too, thought the price hike was rather over the top.

But in steps the free market. In a situation where one company is price gouging, the opportunity for another company to work it to their advantage is ripe. Which is exactly what happened.

A San Diego biomedical company on Thursday announced it’s selling an alternate medication to Daraprim for $1 a capsule, the San Diego Union-Tribune reported.

Mark L. Baum, CEO of Imprimis Pharmaceuticals, told the paper that one catch is that its formula isn’t FDA-approved and may be sold only through a doctor’s prescription to a specific person. He added that the process of getting FDA approval would take years and cost millions, while not filing keeps prices low and profits higher.

Some folks seem to think that making a profit is evil in and of itself, never mind drug manufacturers doing it, but without profit, there is no money to research new medicines. And part of the cost of that research is the government. Ironically, it’s the government that some folks believe can save us from these price hikes. Sorry, when government gets involved, that’s not what happens.

So somehow, without a new law being passed or a new rule being created by the FDA, the situation rectified itself, and those needing help now have a lower-price option than even before Shkreli bought the rights.

Hillary and Bernie seem to think that government is our savior in all things, and that the free market has failed. Well, it’s not, and it hasn’t. Without government’s help, the price of medication has gone down, rightly punishing a bad decision on the part of one company. You can thank the free market for a lower price, and the choices you have. When the government screws up, you can’t just switch governments, but you can switch corporations far, far more easily.

Dan Price’s $70,000 Gamble, 4 Months Later

Sherman, set the Wayback Machine to April, 2015. Back in that day, Dan Price set the liberal’s hearts all a-flutter when he announced that he would pay all his people, over the course of 3 years, a minimum of $70,000. At the same time, Dan, the CEO of Gravity Payments, would drop his own salary from $1 million to $70,000 as well.

Those pushing for an increase in the minimum wage loved the idea. With no more than an announcement in hand, they proclaimed his move as an example others should follow. Again, all they had was an announcement. They proclaimed victory even before the new pay scale was in place, because for these liberals, intentions are more important than results.

Now here in August, we have a few results, and they’re not looking good for Gravity Payments. First off, some clients – some put off by what appeared to be a political statement, some by a concern that the fees will rise – dropped the company. Gravity has assured clients that the fees will stay the same, but there’s a perception working against him, that you can’t raise the cost of doing business without offsetting at least some of that cost. Maybe that’s all perception; we’ll see. But if you have a vendor that could be increasing its costs, it only makes sense that you might want to look for a cheaper vendor.

On the other side of the coin, Gravity Payments got more clients who appreciated the political and social statement that Dan Price made, and signed on. It appears that they did offset the number of clients who left, but for now, the economic impact of the new clients isn’t enough. New clients take over a year to be profitable for Gravity, so it’s not just a 1-for-1 trade-off. And he’s had to hire new employees to deal with the new clients, at the new, higher pay rate, which, again, impacts the bottom line.

But here’s the effect that surprised me the least. Two of Mr. Price’s most valued employees quit. Two may not seem like a lot, but it’s a rather small company. This was in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises. For a large swath of Gravity employees, there is no such thing as “merit pay”. The lower tier of employees gets the same amount regardless of their productivity. Even one of the employees in that tier quit because he saw how it “shackles” the low performers to the high performers.

In speaking about his ideals, Price had this to say, quoted in the NY Times:

“Income inequality has been racing in the wrong direction,” he said. “I want to fight for the idea that if someone is intelligent, hard-working and does a good job, then they are entitled to live a middle-class lifestyle.”

No, see, that’s the issue, and it’s why some of his better employees are leaving. These raises were not based on how hard you worked, and that’s going to give observant workers some cause for concern.

And then there’s the big bombshell. While not directly related to the pay raise, a lawsuit brought by his co-owner and brother may be more than the company can handle. With profits going more into salaries, there is a decreasing amount available for a rainy day, or for a buyout demand. Y’know, regardless of the merits of the case, sometimes a business needs cash sitting around to be able to handle such situations. Otherwise, any hitch in the revenue flow could put them, and their well-paid employees, out of business. Sometimes those big profits are a cushion to keep any bumps in the road from causing folks to lose their jobs. Those who dismiss that don’t, I think, understand the gravity of the situation.

Dan Price might be learning by experience, but I fear the lesson is being lost on others.

Lessons From the Greek Tragedy

Imagine, if you will, a guy who fills out a loan application, but lies on it about his current financial situation, or he tells the truth about his bad situation but signs a promise to get his financial house in order if he can get this loan. Now let’s say he doesn’t make the changes he promised, but spends the money on the same things that got him into the mess he was in before the loan. When it’s time to make payments on the loan, he complains he doesn’t have the money and wants to renegotiate the terms of the existing loan and get a new one.

You’re the loan officer. What do you do? The guy’s telling you he needs the money to eat and to pay his other bills. But he didn’t change his free-spending ways like he promised and now he’s in a bind again. Is it prudent to give more cash to a guy who can’t change his spending habits, and can’t repay what you’ve already given him?

No, it’s not. That’s not being heartless; that’s just being a good steward of the bank’s money. And if you keep giving this guy money, and he doesn’t repay it, what about the depositors who’s money it is that you’re handing out? When they need their money, where will it be?

The guy I’m talking about is the country of Greece. And just like Margaret Thatcher’s description, their socialism was working great, right up until they ran out of other people’s money. You can only soak the rich for so long, and so they went to the European and international banks for bailouts. And more bailouts. But each time, though they promised to mend their free-spending, socialist ways, they didn’t and wound up in the same situation.

There are 2 major problems that this situation has highlighted. First, the European Union has certainly caused state sovereignty to seep out of the individual countries, such that it’s understandable why citizens of Greece would be insisting that the EU be held at least partially responsible. If Greece must bow to the EU on some matters, the EU must be willing to help. With great power-grabs come great responsibility.

But the other major problem is one that our own country needs to come to terms with. The Greek government got in over its head with promises it made to various groups. Welfare, pension, and other government payments got to the point where merely servicing those was drowning the country in debt. They made the promises, so they had to keep them. And when the government over-promised, the people voted in politicians who would give them more stuff, until the government had to tax and tax, and borrow and borrow, to keep up. And all that taxing and borrowing reduces economic growth and devalues the currency. So more taxing and more borrowing, and the death spiral continues.

So then, who should pay for the bad choices of the Greek people? Should we allow the Greeks to default on their obligations, and then have the German and the French people have to bail out their banks? How in the world is that fair? “But what about the Greek people?”, those on the Left were asking when those Greek people voted to stiff their creditors. “Why should they be punished for the actions of their government?” Well, because they voted for the guy who squandered the money and walked into the bank to ask for more. And if the Greeks are let off the hook, there are other European countries looking to try the same ploy. I’m looking at you, Spain, Portugal and Italy.

The problem is that the Greeks poked a big hole in their own boat, and no amount of bailing by themselves will keep them afloat. More bailers, if you will, would help, and the EU is going to continue to help in the bailing, but the Greeks need to agree to quit making the hole bigger, and take steps to plug it. That’s going to take some hard choices on their part, but that’s the problem with socialism. Once you get used to the idea of free money and benefits, you get to thinking that they are your “right”. Going back to fiscal responsibility is a much harder road to travel.

The Greeks are learning that lesson. Well, I hope they are. I’m not so sure after they voted to default on their loans. I also hope that we’ll learn it, too. But I begin to wonder about my fellow countrymen when I see how popular presidential candidate Bernie Sanders is, who is an avowed socialist. “Ignore the News, Vote for Sanders!”

How One-Party Rule Has Affected Cities

A few thoughts on this particular subject.

Chicago, Illinois; the safest city in the US because of its strict gun control laws. Heh, no, not really. It’s got some of the highest gun crime in the country in spite of, or perhaps because of, it’s strict gun control laws. Gun control is one of those things that liberals insist works in spite of the reality to the contrary.

Here’s another: in spite of Chicago being a liberal paradise – not having a single Republican governor for over 80 years since 1931 – somehow the city’s economy is crumbling. It’s Democrats who keep insisting that they, and not Republicans, know how to bring the poor out of their situation, and believe that if we only spend enough money on a problem, it’ll get solved by government. And yet Moody’s Investor Service, which rates, among other things, the municipal bonds of cities, has downgraded Chicago’s credit rating to junk level. It also said that the city’s future outlook is negative, which I guess means that someday the credit rating could drop to “extra junk”, “junkier”, or maybe “double secret junk”.

I’ve mentioned Detroit, Michigan in the past. They’ve had Democratic mayors since 1962; about 30 years less than Chicago, but still over half a century. And yet the economy and infrastructure have seen better days. The city of Baltimore, Maryland was in the headlines for riots over the death of a black youth in police custody, and the state of its economy came to the fore during that; an economy where poverty was still rampant. And its mayors? Only 1 Republican since 1947.

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It’s milestone time! Episode 100 of the Consider This Podcast has been released; conservative commentary in 10 minutes or less. (OK, but since this is a special occasion, that time limit has gone out the window.)

Well, I made it all the way to episode 100! If you’ve been listening, thanks so much. If you haven’t, might as well start now.

I start out the show with greetings and feedback from listeners. Yes, there are people out there actually listening to this, and I appreciate it very much.

Then we take a trip back to Camelot, as Mark Twain’s character did in “A Connecticut Yankee in King Arthur’s Court”. In that book, there is a short chapter about … economics. No, really. And it’s trying to teach a lesson that, over a hundred years later, we’re still having to relearn.

Let me know your thoughts on these or other subjects. Click on the link for the show notes and ways to send your feedback, including calling 267-CALL-CT-0 (267-225-5280) or emailing considerthis@ctpodcasting.com. Subscribe to the podcast in iTunesStitcherBlubrry, or Player.fm.

(This is part of the script for the latest episode of my podcast, “Consider This!”. You can listen to it on the website, or subscribe to it in iTunes, Stitcher Radio, Blubrry, Player.fm, or the podcast app of your choice.)

Sometimes people ask what the real difference is between the Republicans and Democrats, and sometimes, for certain issues, I’m inclined to agree; not much. However, when it comes to promoting economic growth, there’s certainly a trend that favors one over the other.

It’s been said that the states are the laboratories of American democracy. Though more and more autonomy has been taken from them by the federal government, there is still enough that one can look across the country from sea to shining sea and see what works and what doesn’t. So what has the government’s Bureau of Economic Analysis told us about the year 2013?

Here were the top 10 states in GDP growth:

  • North Dakota — 9.7 percent
  • Wyoming — 7.6 percent
  • West Virginia — 5.1 percent
  • Oklahoma — 4.2 percent
  • Idaho — 4.1 percent
  • Colorado — 3.8 percent
  • Utah — 3.8 percent
  • Texas — 3.7 percent
  • South Dakota — 3.1 percent
  • Nebraska — 3.0 percent

This was all while the nation’s GDP growth was just 1.8 percent. Tom Blumer writing at the NewsBusters website noted that only Colorado and West Virginia could be considered something other than deep-red states — and despite having several prominent Democrats in statewide and national office, they both arguably lean red.

And let’s not forget, as I covered back in February, that Wisconsin, under Republican Governor Scott Walker, went from running a deficit to a $1 billion surplus by cutting taxes.

In all of this, you’d think that someone would have predicted such an economic outcome from these policies. Oh wait, they did, and those people are called “conservatives”. So if you indeed see what works and what doesn’t, and still ignore it, you might be a Democrat.

More Money for Medicare?

One of the alternatives to ObamaCare that the Left suggested is that Medicare should just be expanded to cover everyone. It “worked”, so they said, and thus that would be a simpler way to get health care coverage expanded.

But an investigation by the inspector general of the Department of Health and Human Services said that the program spent $6.7 billion (with a “b”) too much for office visits and other services. And that’s just in 2010; just one year’s worth of fraud, abuse and/or incompetence.

We keep hearing about how this politician or another wants to save the government and the taxpayer money by eliminating this kind of waste, but it never happens. Here’s one reason why. The Centers for Medicare and Medicaid Services, which runs Medicare, said it doesn’t plan to review the excess billing payments that account for this because it isn’t cost-effective to do so. Essentially what they’re saying is that it would cost more than $6.7 billion to save that $6.7 billion. Really? Is…is that job opening available? Because if it is, I think I could do it for half that cash. Or, at least I’d like to try.

See, this is a prime example of the problems of big government. It can waste billions – billions – and then claim that it’s not cost effective to deal with the waste. And then the recipients of that fraud have nothing to worry about. Their scam is safe within the walls of a massive bureaucracy. Oh sure, it’s helping the poor and elderly, but really, is there no way at all for that to happen without flushing away billions every year? Really?

This is also a prime example of what happens to centralized government programs. They become bigger and costlier, and, as Ronald Reagan observed, they wind up being the closest thing to eternal life we’ll see this side of heaven. They are a power unto themselves, and any attempt to rein them in has to deal with that inertia, not to mention that, as I said earlier, any attempt to curb such waste gets those attempting it the injustice of being considered hateful, racist, and whatever else the Left can come up with today.

There’s a trend here on the issue of big government programs, both in the money they cost, and the way they’re defended in spite of their results. And yet, we just keep adding to their numbers. If one definition of insanity is doing the same thing over and over but expecting different results, it’s time to have the government committed.

It has been a tenet of the Left that government can be a force for good, and no one’s really denying that. It’s just that there are places for it, and places where it shouldn’t be, and if you overextend government’s reach, prepare for these very consequences. The Constitution was written to keep those kinds of folks in check. Unfortunately, there’s not been enough pushback, and now too many Americans expect this sort of overreach, but they want others to pay for it.

More Money for the VA?

(This is part of the transcript of my latest podcast episode, "Consider This!")

In an opinion piece at the Huffington Post by H. A. Goodman, he argues that Republicans have been complaining about how bad the VA is, but hypocritically voted against a bill for various funding for the VA back in January.

Here’s a problem with that, and it’s not something you’ll hear on most newscasts. For the last 5 years, the VA has not spent its full health care budget; as much as $1.163 billion extra to as “little” as $450 million in medical-care funding from this past fiscal year. And still vets have been waiting too long for care, some paying with their lives. Clearly, clearly, throwing more money at the problem has done nothing whatsoever to fix it.

The Republicans, back in January, said that if the huge catch-all bill were split up into separate bills, there were plenty of items they would vote for. The issue was fiscal responsibility. Democrats, on the other hand, really do have the mindset that enough greenbacks will solve any problem, especially if the problem is one that makes liberalism look bad. And the single-payer VA medical system absolutely fits that particular bill. Creating a single source of a particular product or service (in this case, health care) inevitably leads to scarcity (in this case, waiting lines). If vets could choose any hospital they wanted, and if the government still picked up the tab, would we have this problem? No. But this would be an indictment of a system that Democrats want to see implemented all over, and so it cannot be seen to fail.

Remember this when Democrats like Mr. Goodman accuse Republicans of “hating the poor” or of being “racist” because they don’t want to throw more money at programs that are similarly flawed. Since the mid 60s, when the “War on Poverty” began, the poverty rate has been bouncing around between 10 and 15% of the population. Nothing has changed. Prior to that, the poverty rate had been steadily decreasing, from 30% in 1950 to 15% when we went to war on it. We were gaining ground, but since “going to war”, it’s been nothing but a stalemate, even though the programs have been costlier every year. But just look askance at the programs, just try to reign in some of that continue rise in cost, and you get accused of all manner of hate and villainy. For nearly half a century we’ve been pouring more and more money into it, just like the VA. And, just like the VA, it is not doing what it is supposed to be doing, or doing it incredibly inefficiently.

But if you want to change the flat tire and try to get things done better, you’re accused of hating the car. The flat’s got us this far, it can go further, right?

Piecemeal vs. Overhaul

Part of ObamaCare was the PCIP, the Pre-Existing Condition Insurance Plan. John Lott notes that, at its height, at the beginning of 2013, there were 115,000 enrolled in it. So one big selling point seems to be working.

Except that dealing with something like this on its own would have been cheaper and less disruptive of the entire health insurance industry. Clayton Cramer did the math, and if you gave those people $20,000 per year to subsidize their insurance premiums, it would cost $2.3 billion. Now, that’s a lot of money anyway, but doing it that way would also allow millions of people to keep their plan if they liked their plan; just one example of the disruption that was caused instead.

Again I note that Republicans did have their own solutions to the health care problems, but Democrats insisted that the whole industry had to be upended in order to fix it. We’re finding out just how wrong that was. We are. Seems they aren’t.

ObamaCare “Savings”

In spite of all its rollout issues, the glitches, the delays and the special privileges, the promise of ObamaCare was that, in getting more people, mostly the young and the poor, insured, that would spread out the risk and make insurance cheaper overall, even with those subsidies. By how much? Well, there were promises made, over and over.

Now, in some of those cases he did say “up to” $2500 dollars. And since 0 is technically on the way up to 2500, if you didn’t save anything, he can count you as a promise kept, just like anyone else trying to sell you something on TV. However, what about these folks?

A recent survey of 148 insurance brokers shows that ObamaCare is sending premiums rising at the fastest clip in decades.

“For the last, about, five years they’ve been doing this survey, so this was the largest percentage increase in any quarter since they’ve been doing (it),” said Scott Gottlieb of the American Enterprise Institute.

“But at 12 percent, 11 percent increase on average across all the states — that puts it at the upper end of any increase we’ve seen for decades.”

I don’t think that “truth in advertising” laws would allow you to claim that saving negative dollars is somewhere “up to” $2500. Now, are some people saving that much? I’ll stipulate to that, but in general, on average, this is costing the American people more, not less.

And for some states, it’s really bad. Premiums in Pennsylvania went up 28 percent. In Florida, up 37%. In California, up 53%. And those in Delaware have had to deal with a 100% increase in premiums.

Oh, and this isn’t considering the higher deductibles. That’s just as much a cost as the premium. And the Congressional Budget Office projects that the premiums of the ObamaCare plans are going to continue to rise.

Of course, those paying the penalty are saving loads of cash. That defeats the purpose, but hey, savings are savings, right?

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