Wednesday, November 10, 2004

Flu Shots vs. Viagra

I'm beginning to think I could write a whole blog just contesting op-eds in the Times about healthcare. Today's subject is an op-ed by Donald L. Barlett and James B. Steele called, unsurprisingly, "The Health of Nations." (The name has been used over and over, including by the Times' own Paul Krugman earlier this year.)

The authors attempt to illustrate the evils of the market system when it comes to prescription drugs. Their example is the shortage of flu shots and the proliferation of impotence drugs:
The reason for the shortage is this: Preventing a flu epidemic that could kill thousands is not nearly as profitable as making pills for something like erectile dysfunction, a decidedly non-fatal condition. Viagra, for example, brings in more than $1 billion a year for its maker, Pfizer. The profits to be made from selling flu vaccine are measly in comparison.
Their solution is a single-payer system. Is this a reasonable response? First, consider Viagra. There clearly is a demand for it, given its strong sales. People want it. Would it be produced in a single-payer system? Or would experts such as these decide it was not important? The market responds better to what people actually want.

Isn't the shortage of flu shots proof that it doesn't? Actually, no. There isn't a proper market for flu shots, but a monopsony situation, where the government is the only buyer. The government pays a low fixed price and distributes the vaccine. As a result, most vaccine suppliers dropped out of the market. This is pretty similar to a single-payer situation. Price controls often lead to shortages.

So what's the lesson here? Certainly not that markets are bad and goverment control is good. In fact, it seems the opposite.

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