Better Incentives for Research, Not Perfection

The Conversation
November 26, 2008

I will try to make one quick concluding point in my exchange with Roderick on patents. I realize that he doesn’t like my system because it requires that we tax people to pay for the research. But if he will agree for a moment not to make his perfect the enemy of his good, let me compare the system that I proposed with the current system.

The country is currently spending about $250 billion a year on prescription drugs, with just under $90 billion coming through various government funded programs. Let’s imagine that we eliminate patent protection tomorrow. We would be able to buy the same drugs for around $25 billion a year in a world in which all drugs could be sold as generics.

Now we still have to pay for the research. My ballpark guesstimate is that we could replace the research done by the pharmaceutical industry with $30–$40 billion of publicly funded research (this is approximately equal to what they claim to spend).

Now, if we hypothesize that this is in fact the case, which is better: a world in which we tax people $90 billion dollars to buy drugs at patent protected prices, or a world in which we tax people $30-$40 billion to pay for research, and all drugs are sold at market prices?

I know my answer to that question, I’m interested in Roderick’s.

Also from This Issue

Lead Essay

  • Corporations versus the Market; or, Whip Conflation Now by Roderick T. Long

    In this month’s lead essay, philosopher and libertarian theorist Roderick T. Long draws a sharp contrast between corporatism and libertarianism properly understood. He argues that liberals, conservatives, and even libertarians have all been guilty to some degree of obscuring this difference, and that the quality of our political discourse has suffered accordingly. He suggests that libertarians should guard themselves against falling into the trap of “vulgar libertarianism,” in which all things good spring from business, and particularly from business as usual. Corporations, he argues, should be no more free from scrutiny than any other institution in society, and often businesses have done more than their share to hamper free economic relations in the industrialized world.

    One implication of all of this is that the truly free market is farther away than we imagine. Long suggests several ways in which a freed market would be different from what we see around us today. Notably, nearly all of these differences are to the benefit of the consumer and the small or start-up business. These likely outcomes of laissez faire suggest new grounds for left-liberals and libertarians to revise their thinking on economic issues and on politics more generally.

Response Essays

  • Politics Compromises the Libertarian Project by Matthew Yglesias

    In his response to Long, Matthew Yglesias argues that although corporations naturally seek to win special privileges from the state, libertarianism is far from the obvious solution to the problem. Instead, he reiterates the charge that libertarians often act as corporate apologists and suggests that the net effect of any “free market” advocacy will tend strongly toward corporate power. Liberals may have much to learn from libertarians on certain issues and in some policy areas, but the laissez-faire solution to corporate political influence is unworkable.

  • Untangling the Corporatist Knot by Steven Horwitz

    Steven Horwitz offers several examples of so-called “de-regulation” that only served to benefit corporations, while leaving the government, and therefore the taxpayers, to shoulder the risks of the market. He argues that market competition is a form of regulation, albeit a kind worth wanting, as it forces corporations to respond to consumer demand and punishes them when they fail to meet it. He takes issue with Long’s lead essay by arguing that “playing defense,” that is, defending today’s corporations when they act consonantly with a fully freed market, is a valuable part of libertarian advocacy. One must nonetheless take issue with these same corporations when they violate the principles of laissez faire and distinguish carefully between these cases.

  • Libertarians and Corporate Power: Actions Speak Louder Than Words by Dean Baker

    In his response essay, Dean Baker declines to tally up a “score” of how well libertarians, or other groups, have defended a truly impartial, laissez faire economy. Instead, he suggests intellectual property as an obvious area where libertarians must challenge corporate power to distort the market. Patents that make health care more expensive and copyrights that artificially restrict whole areas of our culture are obviously concessions to corporatism, and the “extraordinary abuses” undertaken to enforce these privileges should be vigorously challenged. Although libertarianism has been skeptical of both patents and copyrights, Baker suggests that this is an area deserving still further attention, and one in which liberals could perhaps become solid allies.

  • Cato Scholars Respond by The Editors

    The discussion this month has focused to a greater than usual degree on the activities of certain Cato Institute policy scholars. The editors thought it appropriate to solicit responses, and we present them here in their entirety.

The Conversation