Economists Warn of Dangers of Drug Importation, Price Controls

Economists Warn of Dangers of Drug Importation, Price Controls
February 1, 2004



We are deeply concerned about proposed legislation to remove pharmaceutical companies’ ability to control the importation of their products. The goal of this legislation will be to reduce prices in the American market by imposing other nations’ price controls on us. If this attempt succeeds, American consumers would get the short-term windfall of lower prices, but they would end up unnecessarily suffering and living shorter lives--because promising new therapies would be delayed or not even developed. Even the threat of price controls reduces the incentive to develop new drugs.

The ideal solution would be for other wealthy nations to remove their price controls over pharmaceuticals. America is the last major market without these controls. Imposing price controls here would have a major impact on drug development worldwide, harming not only Americans but people all over the world. On the other hand, removing foreign price controls would bolster research incentives. In addition, most new drugs are developed by American firms, and price controls would harm those firms and their employees.

Drug price controls are more difficult to remove than other price controls. Controls on oil and other products often tend to be limited or short-lived, as voters eventually object to the resulting shortages and distortions. The effects of drug price controls, however, are far more difficult to observe because they mainly affect medicines that haven’t been invented yet.

Even if people were to realize that price controls are preventing new drugs from being developed, undoing the effects of those controls would be a difficult task. Customers would have to pay higher prices for years before they saw benefits. Firms would have to be convinced that controls would not be reimposed as soon as their new drugs are released.

For these reasons, we urge Congress to abandon attempts to peg U.S. drug prices to controlled prices in other nations.


Burton Abrams, Professor of Economics, University of Delaware

William P. Albrecht, Professor of Economics, University of Iowa

Donald L. Alexander, Professor of Economics, Western Michigan
University

Joseph Antos, Wilson H. Taylor Scholar in Health Care and Retirement Policy, American Enterprise Institute

Paul Ballantyne, Professor of Economics, University of Colorado at Colorado Springs

Doug Bandow, James Madison Scholar, American Legislative Exchange Council

Claude E. Barfield, Director of Science/Technology Policy Studies, American Enterprise Institute

Stacie Beck, Professor of Economics, University of Delaware

Don Bellante, Professor of Economics, University of South Florida

Bruce Bender, Professor, School of Business Administration, University of Wisconsin-Milwaukee

Daniel K. Benjamin, Professor of Economics, Clemson University

John Berthoud, George Washington University

Elizabeth C. Bogan, Professor of Economics, Princeton University

Patrick Bolton, Professor of Economics, Princeton University

David Bradford, Professor of Economics, Woodrow Wilson School, Princeton University.

David P. Brown, Chairman, Department of Finance, University of Wisconsin - Madison

Mary Bumgarner, Professor of Economics, Kennesaw State University

Henry Butler, Professor, The George L. Argyros School of Business and Economics, Chapman University

John E. Calfee, Resident Scholar, American Enterprise Institute

Kenneth W. Chilton, Associate Professor of Management, Lindenwood University

James E. Clark, Professor of Economics, Wichita State University

Kenneth W. Clarkson, Professor, Law and Economics Center, University of Miami

Darin G. Clay, Professor of Economics, Department of Finance and Business Economics, University of Southern California

R. Morris Coats, Professor of Economics, Nicholls State University

Lloyd Cohen, Professor, George Mason University School of Law

Eleanor D. Craig, Professor of Economics, University of Delaware

W. Mark Crain, Professor, George Mason University

Robert M. Dammon, Professor of Financial Economics, Carnegie Mellon University

Donald R. Davis, Professor of Economics, Columbia University

Steven J. Davis, Professor of Business Economics, Graduate School of Business, University of Chicago

Gregory Delemeester, Professor, Department of Economics, Management and Accounting, Marietta College

Arthur M. Diamond, Jr., Professor of Economics, University of Nebraska at Omaha

Michael J. Donnelly Jr., Principal and Senior Economics, Global Insight Inc.

Jeffrey H. Dorfman, Professor, Department of Agriculture and Applied Economics, University of Georgia

Thomas J. Duesterberg, President and Chief Executive Officer, Manufacturers Alliance/MAPI

Dennis F. Ellis, Professor Emeritus of Business Economics, University of Michigan-Flint

Bert Ely, Ely & Company, Inc.

Kenneth G. Elzinga, Professor of Economics, University of Virginia

Eric M. Engen, Resident Scholar, American Enterprise Institute

Michael R. Englund, Chief Economist, MMS International

Stephen J. Entin, President, Institute for Research on the Economics of Taxation

Richard E. Ericson, Chair, Department of Economics, East Carolina University

Paul Evans, Professor of Economics, Ohio State University

Frank Falero, Emeritus Professor of Economics, California State University

Paul J. Feldstein, Professor, Graduate School of Management, University of California at Irvine

Darren Filson, Professor of Economics, Claremont Graduate University

Micah Frankel, Associate Dean, California State University, Hayward

Milton Friedman, Senior Research Fellow, Hoover Institution, Stanford University

Gary Galles, Professor of Economics, Social Science Division, Pepperdine University

B. Delworth Gardner, Professor Emeritus of Economics, Brigham Young University

Dave Garthoff, Professor, Department of Associate Studies, University of Akron

James F. Gatti, Professor, School of Business Administration, University of Vermont

Joseph A. Giacalone, Professor of Economics, St. John’s University

Stephan F. Gohmann, Professor of Economics, University of Louisville

Henry Grabowski, Professor of Economics, Duke University

William B. Green, Professor, Department of Economics and International Business, Sam Houston State University

Kenneth V. Greene, Professor of Economics, Binghamton University

David Hammes, Chair and Professor of Economics, University of Hawaii at Hilo

John R. Hanson II, Professor of Economics, Texas A&M University

Stephen Happel, Professor of Economics, W.P Carey School of Business, Arizona State University

Scott Harrington, Professor, Moore School of Business, University of South Carolina

Kevin A. Hassett, Director of Economic Policy Studies, American Enterprise Institute

Robert F. Hebert, Professor of Economics, Moody College of Business Administration

Dale Heien, Professor, Department of Agricultural and Resource Economics, University of California-Davis

Robert B. Helms, Director of Health Policy Studies, American Enterprise Institute

James W. Henderson, Professor of Economics, Baylor University

Bradley K. Hobbs, Professor of Economics, Florida Gulf Coast University

Irving Hoch, Professor of Economics and Political Economy, University of Texas at Dallas

George Horwich, Professor Emeritus of Economics, Purdue University

E. Bruce Hutchinson, Professor of Economics, University of Tennessee at Chattanooga

Joseph M. Jadlow, Professor, Department of Economics and Legal Studies in Business, Oklahoma State University

Thomas D. Jeitschko, Professor of Economics, Michigan State University

Douglas H. Joines, Professor of Economics, Department of Finance and Business Economics, Marshall School of Business, University of Southern California

Clifton T. Jones, Professor and Chair, Department of Economics and Finance

Garrett Jones, Professor of Economics and Finance, Southern Illinois University-Edwardsville

Raymond J. Keating, Chief Economist, Small Business Survival Committee

Kristen Keith, Professor of Economics, University of Toledo

Don Kenkel, Professor of Economics, Department of Policy Analysis & Management, Cornell University

Robin Klay, Professor of Economics, Hope College

Audrey D. Kline, Professor of Economics, University of Louisville

Paul Koch, Professor of Economics, Olivet Nazarene University

Eugene M. Kolassa, Managing Partner, Medical Marketing Economics, LLC

Michael I. Krauss, Professor of Law, George Mason University School of Law

Robert Krol, Professor of Economics, California State University, Northridge

William E. Laird, Professor Emeritus of Economics, Florida State University

Russell Lamb, Professor, Department of Agriculture and Resource Economics, North Carolina State University

Richard N. Langlois, Professor of Economics, University of Connecticut

Nicholas A. Lash, Professor of Finance, Loyola University Chicago

Thomas M. Lenard, Vice President for Research, The Progress & Freedom Foundation

Mickey D. Levy, Chief Economist, Bank of America

Stan Liebowitz, Professor of Economics, School of Management, University of Texas at Dallas

Tony Lima, Professor of Economics, California State University

Cotton M. Lindsay, J. Wilson Newman Professor, The John E. Walker Department of Economics, Clemson University

Donald L. Losman, Professor of Economics, Industrial College of the Armed Forces

John R. Lott, Jr., Resident Scholar, American Enterprise Institute

Harold I. Lunde, Professor Emeritus, Bowling Green State University

Kerry Macintosh, Professor, Santa Clara University School of Law

Stephen Margolis, Professor of Economics, North Carolina State University

Joseph P. Magaddino, Professor of Economics, California State University, Long Beach

Michael L. Marlow, Professor of Economics, California Polytechnic State University-San Luis Obispo

Deryl W. Martin, Heidtke Professor of Finance, Tennessee Technological University

Scott E. Masten, Professor of Business Economics and Public Policy, University of Michigan Business School

Merrill Matthews, Institute for Policy Innovation

John McClaughry, President, Ethan Allen Institute

Paul W. McCracken, Edmund Ezra Day Distinguished University Professor Emeritus of Business Administration, Economics and Public Policy, University of Michigan Business School

Tom Means, Professor of Economics, San Jose State University

Roger E. Meiners, Professor of Economics, University of Texas-Arlington

John Merrifield, Professor of Economics, University of Texas at San Antonio

Paul G. Merski, Former Chief Economist, Joint Economic Committee, U.S. Congress

Laurence S. Moss, Professor of Economics, Babson College

Michael C. Munger, Professor and Chair, Department of Political Science, Professor, Department of Economics, Duke University

David J. O’Hara, Professor of Economics, College of Management, Metropolitan State University

James B. O’Neill, Professor of Economics, University of Delaware

June O’Neill, Wollman Professor of Economics, Baruch College, City University of New York

Randall E. Parker, Professor of Economics, East Carolina University

Allen Parkman, Professor of Management, Andersen School of Management, University of New Mexico

E.C. Pasour, Jr., Professor Emeritus, Department of Agriculture and Resource Economics, North Carolina State University

Mark J. Perry, Professor of Finance and Business Economics, University of Michigan-Flint

William H. Peterson, Adjunct Scholar, Heritage Foundation

Keith T. Poole, Professor of Political Science, University of Houston

Jan S. Prybyla, Professor Emeritus of Economics, Pennsylvania State University

Richard W. Rahn, Senior Fellow, Discovery Institute

Ronald A. Ratti, Professor of Economics, University of Missouri-Columbia

Richard Rawlins, Professor, Department of Finance, Economics & International Business, Missouri Southern State University

Bob Reed, Professor, Department of Economics, University of Oklahoma

Jay R. Ritter, Cordell Professor of Finance, University of Florida

Aldona Robbins, Visiting Fellow in Social Security Analysis, Heritage Foundation

Gary Robbins, Visiting Fellow in Tax Analysis, Heritage Foundation

Nancy H. Roberts, Professor of Economics, Arizona State University

David C. Rose, Professor of Economics, University of Missouri-St. Louis

Richard N. Rosett, Dean Emeritus, College of Business, Rochester Institute of Technology

Gabriel Roth, Research Fellow, Independent Institute

Jim Roumasset, Professor of Economics, University of Hawaii

Paul H. Rubin, Samuel Candler Dobbs Professor of Economics and Law, Emory University

Mark Rush, Professor of Economics, University of Florida

Gerard Russo, Professor of Economics, University of Hawaii

Raymond Sauer, Professor of Economics, Clemson University

Thomas R. Saving, Private Enterprise Research Center and Department of Economics, Texas A&M University

Mike Schuyler, Senior Economist, Institute for Research on the Economics of Taxation

John J. Seater, Professor of Economics, North Carolina State University

Larry J. Sechrest, Professor of Economics, Sul Ross State University

Carlos Seiglie, Professor of Economics, Rutgers University

John Semmens, Economist, Laissez Faire Institute

William F. Shughart II, F.A.P. Barnard Distinguished Professor of Economics, University of Mississippi

James F. Smith, Professor of Finance, Kenan-Flagler Business School, University of North Carolina-Chapel Hill

John C. Soper, Professor of Economics, Boler School of Business, John Carroll University

David E. Spencer, Professor of Economics, Brigham Young University

E. Frank Stephenson, Professor of Economics, Berry College

Michael P. Sweeney, Evart McCabe / United Parcel Service Endowed Chair in Economics Business and Accounting, Hillsdale College

Alex Tabarrok, Professor of Economics, George Mason University, Director of Research, The Independent Institute

Richard H. Timberlake, Professor of Economics, retired, University of Georgia

Leo Troy, Professor of Economics, Rutgers University

Grace-Marie Turner, President, Galen Institute

Charles Upton, Professor of Economics, Kent State University

Randal Verbrugge, Bureau of Labor Statistics

Marc Weidenmier, Professor of Economics, Claremont McKenna College

Robert Whaples, Professor of Economics, Wake Forest University

Steven N. Wiggins, Professor of Economics, Texas A&M University

Michael E. Williams, Professor of Economics, Reiman School of Finance, University of Denver

Douglas Wills, Professor, Department of Business Administration, University of Washington Tacoma

Gary Wolfram, George Munson Professor of Political Economy, Hillsdale College

Paul J. Zak, Director, Center for Neuroeconomic Studies, Claremont Graduate University, Adjunct Professor of Neurology, Loma Linda University

Kate Zhou, Professor of Political Science, University of Hawaii

Michael Zimmer, Professor of Economics, University of Evansville

Benjamin Zycher, Senior Fellow, Pacific Research Institute


Dr. Milton Friedman, who received the 1976 Nobel Memorial Prize for economic science, has been a senior research fellow at the Hoover Institution since 1977. He is also the Paul Snowden Russell Distinguished Service Professor Emeritus of Economics at the University of Chicago, where he taught from 1946 to 1976, and was a member of the research staff of the National Bureau of Economic Research from 1937 to 1981. Friedman was awarded the Presidential Medal of Freedom in 1988 and received the National Medal of Science the same year.
This open letter was first published on November 20, 2003 by Tech Central Station
(http://www.techcentralstation.com) and is reprinted here with permission.