Comment by jerf | Hacker News Reader

Comment by jerf | Hacker News Reader

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Look at a fuller quote:

"Policy makers apparently failed to ask the important question: How could this happen in a free-market economy? That would have steered them to the giant purchasing organizations that control the procurement of up to $300 billion in drugs, devices and supplies annually for some 5,000 health care facilities. These cartels have undermined the laws of supply and demand."

I'm pretty sure the question is meant to be a question you ask to lead you to where the free market is indeed being broken, not a claim that we have a free market.

This is solid logic; if the free market can do anything, it's match supply and demand via price signals. (If you're having a political reaction to that statement, I mean this in a simple microeconomics sense; it is indeed what free markets do.) In the absence of raw material problems, pervasive shortages are effectively proof that somewhere in the system, someone's fixing prices to below production costs. Sounds like they might be combining that with some good ol' fashioned corruption.

(This is why I'm a "libertarian" and not an "anarchist"; the free market needs defenders, because as beautiful as the theory is, in the real world, stuff like this happens, and it needs to be stopped by somebody with the power to stop it.)

Yes, you're right that I was being unfair there. But I'd argue that the biggest ways the drug production system fails are related to the legal controls that prohibit companies from legally ramping up production to meet shortfalls in production from other producers without lengthy negotiations with regulators first.

As mentioned in the article, the New England Compounding Center and Ameridose did just that.

Of course, in the theory, there aren't price controls (because one of the fundamental lessons of economics is that price controls cause shortages).

And in reality, there are lots of price controls on generics. That's not a bug with the theory; drug production is only a partially free market at best.

This is solid logic; if the free market can do anything,

Whether it can in principle, versus whether it does in reality are of course two very different things.

The thing I hate about modern political economic rhetoric is how basic econ 101 has become political, or even moral. In fact as you can see by my entire last paragraph, I in fact do not have blind faith in "the free market" to always function perfectly with no intervention, but thanks to the thought-destroying moralizing that accompanies our political discourse, I know that the instant I say "free market" about 75% of my audience just shut off their brain.

Even that might not be so bad, if a huge chunk of the audience did not consider it their moral duty to shut off their brain.

Yes, what a free market does is match supply and demand via price signals. It is the aforementioned Econ 101, using mechanisms discussed in Econ 101, which are all mostly math and border on physics. What people don't like is that it does so entirely a-morally (not im-morally as some would like you to think, but actually a-morally, with no particular regard for human morals), so you will sometimes not like how it does it (thus, price gouging laws during emergencies; the free market is trying to balance a sudden supply shock with skyrocketing prices, and we don't like that), and sometimes we have to intervene to prevent it from amorally doing something we don't want to happen at all (hence the need to sometimes straight-up ban things; a free market will efficiently price slaves, drugs, or hit jobs perfectly amorally), but in the normal case, what a free market does is match supply to demand with price signals, regardless of whether we "like" the result or not. It is sufficiently efficient at this that a long-term failure to match up supply & demand is extremely strong evidence (though not quite 100% proof) that there is not a free market where the mismatch is occurring; something's fiddling with the prices outside of normal supply and demand mechanisms. (An interesting example in the other direction is that our War On Drugs has been rather ineffective, as can be shown by the fact that supply and demand are often quite well matched up via pricing; despite our best efforts there still is a fairly free market in drugs!)

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