Did He Say That?

I can’t believe I heard the president on television yesterday say what he said. He was speaking about the high cost of drugs, and suggested that the patents on drugs be reduced from twenty years to seven years so that the generics could reach the market sooner. Either the president has not taken Economics 101 or he was speaking from notes a staff member wrote who did not know the first thing about economics.

Think about it. What would happen if the patent period were reduced?

A couple of things would happen, both of which would be bad. What is the purpose of the patent and copyright laws? Do they not serve an economic purpose of encouraging innovation and inventiveness by providing an economic incentive? So innovation and inventiveness would be less encouraged, and the development of new drugs would for diseases would not be so much encouraged. I saw an example of this lack of economic encouragement a few years after the fall of the Berlin wall. I was at an airport bar in England sitting next to a couple of German businessmen and asked one of them how the reunification of Germany was proceeding. One of the men said that it was a bit rough. Their laws required that the pay workers from the East the same as workers from the West. But whereas the Western workers had progressed over forty some year to the use of computer controlled and automated machine tools, the Easters workers were still accustomed to the hand controlled machine tools of four decades earlier. Their technology had not advanced because there was no profit motive in the state controlled Eastern economy. Their productivity was lower and great expense was incurred in retraining the Eastern workers.

Secondly, if the patent period was reduced and a new drug was invented, the drug company would have to sell the drug for much more during the patent period to recover the development costs. Three times the price, assuming constant value dollars would at least be necessary. But you could double that to cover the burden of inflation. And double it again because the higher price reduces sales, What you would end up with is then one of two consequences:
1. No new drug at all, because it is uneconomical to develop.
2. Drugs that are ten, twelve, or more times or more costly while they are protected by patent.
What is really called for is a patent period of much more than twenty years, say forty, fifty, or even a hundred years of patent protection.