Price Controls Wrong Prescription for Low-Cost Drugs, Economist Warns

By Fred Lucas | July 7, 2008 | 8:23 PM EDT

( - Democratic contenders for the 2008 presidential election want to use the federal government to lower the cost of prescription drugs, but while the move may be well-intentioned it could end up costing lives, an economist argued during an event in Washington, D.C.

"All Democratic presidential candidates agree on pharmaceutical price controls, which means people will die," John R. Lott, Jr., a senior research scientist at the University of Maryland, told a gathering Tuesday at the Cato Institute, a libertarian think tank.

Leading Democratic contenders rarely if ever use the words "price controls," which are prominent in socialized European economies and Canada, Lott observed.

At the same time, however, New York Sen. Hillary Clinton, Illinois Sen. Barack Obama and former North Carolina Sen. John Edwards have all advocated the purchase of drugs from other countries that have price controls, and want Medicare to be able to negotiate the price of drugs.

Second-tier Democratic candidates have made similar proposals.

Lott said the implications could be very serious.

"If there is a 100 percent chance that Democrats will win the presidency and in two to three years there will be price controls on drugs, there will not be much sense in developing new drugs because the pharmaceutical companies will not be able to pay for it," he asserted.

Such proposals are based on misguided altruism, Lott said.

The economist and author was speaking about his new book, "Freedomnomics," which argues for free markets and minimal government intrusion. In the book, he discusses such issues as the economic effect of divorce, abortion, the government's assistance of certain industries and free trade.

His assertions did not go unchallenged.

Jared Bernstein, senior economist with the Economics Policy Institute, a think tank that favors more government intervention in the economy, said he did not disagree with the core argument of Lott's book -- that free markets are "less imperfect" than government control.

But he told the Cato audience that America needs a strong public sector, and singled out health care in particular.

On the question of drug prices, he said: "It's a strong statement to say price controls kill people."

"You could easily argue that the current approach by pharmaceutical companies kills people," Bernstein told Cybercast News Service after the event.

"They spend more on marketing than on research," he argued. "They spend more on 'me-too' drugs and lifestyle drugs to enhance sexual performance or diminish hair loss than on drugs to treat malaria, which kills millions of people."

The federal government already invests heavily in drug research, so "it's wrong to say this is entirely the free market at play," Bernstein said.

Lott said the bottom line is if the government restricts the profit potential for a drug company, that company will have fewer incentives to produce life-saving medicines.

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