Books usually cost very little per book to print from the press, yet often cost upwards of 30+ dollars in bookstores. Shouldn’t consumers be outraged that these books end up costing so much? Isn’t this unfair because many people can’t afford books? Any reasonable person should realize that the costs that goes into creating books is much more than simply the printing costs. Authors frequently spend years researching and writing books, pay editors to proof-read, and have agents to find them publishers. All this costs money, which is the reason books end up costing what they do and no one organizes lobbying groups to petition the government to control book prices.

Then why do people lobby so hard for the government to strictly regulate pharmaceuticals and their prices? Isn’t it true that, like books, much time and money is poured into their development and production? Shouldn’t pharmaceutical companies be able to at least recuperate the money they invested in their products? Many people – most of whom don’t complain about book prices – say no. Most people think that they have a right to affordable health care and are in favor of government-regulated pharmaceutical prices. They demand that these potentially life-saving drugs be provided to them at “reasonable” prices. Most of the time their definition of reasonable means a price at which it would take ages for the pharmaceutical company to recoup what they invested into research, development, and production. People ignore that fact that these companies, like every other company, exist to make a profit. When companies find something unprofitable, they stop doing it.

This is simple incentive-based economics: people do things that benefit themselves. If something doesn’t continue to benefit them, they simply stop doing it and move on to something that does. Government price controls on drugs drastically lowers the incentive for pharmaceutical companies to continue spending years, even decades, funding research and development of beneficial medicines. Even talk about government price controls makes pharmaceutical companies pause to weigh the costs of researching new drugs with the potential benefits. It would be horrible to think that a company would decide not to fund the further research and development of an amazing new cancer-fighting drug because they would be forced to sell it at a price which would prevent them from turning the profit necessary to stay in existence!

This all-to-real scenario is poignantly revealed in a section of Michael Crichton’s book Jurassic Park. The following comes from a passage where the character who created Jurassic Park explains to his top scientist, Henry, why he decided to invest his time and money into researching and developing entertainment instead of pharmaceuticals for the world.

“New drugs for mankind. Noble, noble purpose. Unfortunately, drugs face all kinds of barriers. FDA testing alone takes five to eight years – if you’re lucky. Even worse, there are forces at work in the marketplace. Suppose you make a miracle drug for cancer or heart disease – as Genentech did. Suppose you now want to charge a thousand dollars or two thousand dollars a dose. You might imagine that is your privilege. After all, you invented the drug, you paid to develop and test it; you should be able to charge whatever you wish. But do you really think that the government will let you do that? No, Henry, they will not. Sick people aren’t going to pay a thousand dollars a dose for needed medication – they won’t be grateful, they’ll be outraged. Blue Cross isn’t going to pay it. They’ll scream highway robbery. So something will happen. Your patent application will be denied. Your permits will be delayed. Something will force you to see reason – and to sell your drug at a lower cost. From a business standpoint, that makes helping mankind a very risky business. Personally, I would never help mankind.”

“Now,” Hammond said, “think how different it is when you’re making entertainment. Nobody needs entertainment. That’s not a matter for government intervention. If I charge five thousand dollars a day for my park, who is going to stop me? After all, nobody needs to come here. And, far from being highway robbery, a costly price tag actually increases the appeal of the park. A visit becomes a status symbol, and all Americans love that.”

Incentives matter. When the government makes it harder for companies to survive creating drugs to benefit the world, those companies will start to lose their incentive to do so. When these companies stop investing in new drug research it means that medicines which might have been created to save lives won’t be. Government pharmaceutical price control is a death sentence to its citizens. So next time you have a prescription filled, think about how much time and money went into creating that medicine and be thankful that someone had the incentive to do so.

Written following a lecture by economist Dr. John R. Lott, Jr.