There is a type of parasite known as “zombie” parasites. They alter the brain chemistry of their host and cause them to engage in behavior that they would normally never undertake. Naturally these behaviors benefit the parasite at the expense of the host. For example the Nematomorph hairworm targets grasshoppers and will compel them to dive directly into bodies of water – an apparent suicide. To someone unaware of the parasitical influence this behavior would be truly baffling. Humankind will also engage in similarly baffling behavior due to the influence of its parasite: the state. Likewise, to those unaware of the state’s infection of society, human behavior can be sometimes baffling. For example, just this week there was much moral outrage over the revelation that a Martin Shkreli (owner of Turing Pharmaceuticals) purchased the rights to manufacturer the drug pyrimethamine (brand name Daraprim) and promptly raised the price from $13.50 to $750 per pill. How can this be?! This is horrible; obviously this is an example of “market failure” that must be remedied by state intervention to ensure such greedy bastards can’t get away with such imprudent behavior. Oh, there is greed in play here, but it is not entirely of Shkreli’s doing, he has a good friend helping him out: the state. Acting like a zombie parasite injecting poison into its victim’s brain, the state distorts natural market incentives to such a degree that we are left with nothing but head-scratching outcomes such as this.
The first clue that the state is involved in this mess was the phrase “bought the rights” peppered throughout every new report on this matter. How does one buy the right to make something? Any reasonably competent organic chemist could look at the structure of that drug and figure out how to make it.* What is preventing someone from doing that and eschewing the need to buy the “rights” to make it? The state. Acting under the auspices of the patent office and the FDA the state creates an artificial monopoly barrier for the production of goods as well as their importation into this country. In essence the state acts as the hired goons of Company A that holds a patent or a licenses to produce Drug B. If anyone else tries to produce or import Drug B, those hired goons will take them down. Don’t believe me? Here are the facts: The FDA bans the importation of this drug (for example, a company in India currently makes it for 10¢ a pill) – so Shkreli is safe from that sort of competition. And because he has bought the “right” to make it in the US, that means no one else can make it unless they go through an onerous and expensive FDA approval process. And he didn’t just buy the rights for a song, no, he spent $55 million to acquire those “rights.” So from a strictly economic standpoint the price increase makes sense. The value of a capital acquisition is driven by the price its products can command on the market. Clearly under a monopoly situation (only made possible by the state) it can command a very high price indeed. Absent such monopoly rights, the recipe for the production of that drug would have had some value but certainly no where near $55 million worth.
When the pundits and critics blame the “free” market for this sort of ridiculous outcome I am left to ponder what an odd definition they must have for the word “free”. Does “free” mean to be influenced and controlled by an implicitly violent cartel of bureaucrats that restricts, regulates, licenses, subsidizes, and outlaws in favor of the few at the expense of the many? If so, then I’d like less freedom please. Like the unfortunate grasshopper most of society is willfully ignorant of the parasitical influence in our midst and so, like the grasshopper, we blindly leap into the abyss.
* please see this page for a discussion of the inevitable “but without IP no one will innovate” objection