- The Washington Times - Tuesday, August 10, 2004

In the world of politics, various members of Congress seem to think that by waving the magic wand of legislation, they can repeal the laws that govern science and human nature. It’s as if Harry Potter and his many friends at the Hogwarts School of Witchcraft and Wizardry were elected to the U.S. House of Representatives and Senate.

However, while the wizards and witches in the fantasy world of Harry Potter books and movies have magical powers, Congress does not. Reality cannot be altered no matter how much power politicians believe they wield.

So, the imposition of corporate average fuel economy (CAFE) standards in 1975, for example, meant automakers had to build smaller and lighter vehicles. Since Congress could not suspend the laws of physics, smaller and lighter cars and trucks led to thousands more deaths on roads and highways each year.

A routine favorite of congressional witchcraft and wizardry is trying to bend the laws of economics. That’s the case with ongoing efforts to allow for the re-importation of prescription drugs from other countries, which passed in the House of Representatives last year and is being considered in the Senate.

If consumers in Canada or Europe, for example, pay less for a drug developed in the U.S., then why not allow that drug to be re-imported? All it takes is a wave of the legislative wand.

But the laws of economics do not magically disappear. As Lori Reilly, deputy vice president for policy at the Pharmaceutical Research and Manufacturers of America, said in a recent interview about re-importation: “This is importing a foreign government’s price controls into the United States. … It’s not a free trade issue. This is an issue where countries are controlling the price of drugs … to the detriment of the people there in terms of getting those drugs on a timely basis.”

Indeed, there are many costs that come along with price controls. For example, a report by Bain & Co. presented at the World Economic Forum for Health Care in January 2004 noted that, from 1992 to 2002, a dramatic shift in pharmaceutical profits occurred away from Europe, with its price controls, and to the U.S., where returns on research and development investment are much higher. Price controls cost Europe investment lost to the U.S. and high value-added jobs, reduced first drug launches and slower access to drugs.

As Lori Reilly noted: “The U.S. is really the only place, unfortunately at this point, that is a free market.”

It’s no mere coincidence the U.S. now is the world leader in developing new medicines. What if the U.S. decided to impose price controls? University of Connecticut Professor John Vernon projects 50 years of price controls would reduce the number of new medicines for patients by 60 percent to 73 percent — and if the U.S. had price controls from 1980 to 2001, there now would be 330 to 365 fewer new medicines.

Researching and developing new medicines is a very costly, high-risk endeavor undertaken not only by large pharmaceutical firms but also by small, entrepreneurial ventures. On average, it takes 10-15 years to develop a new drug at a cost of more than $800 million. So, if we want new life-enhancing and life-saving drugs, investment is critical. Limiting returns by importing price controls is exactly the wrong policy.

In the latest film, “Harry Potter and the Prisoner of Azkaban,” Harry’s friend Hermione has mastered time travel, and they go back in time to try to fix something gone awry.

Many in Congress seem to think they too can time travel. After all, laws and policies that don’t work or have bad effects can always be repealed or changed in the future, right? Well, in theory, the answer is yes. Experience, though, tells us political pride, blind ideology, and special interests get in the way, and make such remedies very rare.

The answer, of course, is not to make the mistake in the first place. Don’t pretend some political chant or potion can twist reality. For importing price controls on prescription drugs, no prestidigitation can repeal the laws of economics. Playing Harry Potter with medicine is a deadly game. Congress needs to deal with the real world and drop the idea of allowing re-importation of prescription drugs.

Raymond J. Keating is chief economist for the Small Business Survival Committee.

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