Populism makes sense as a political strategy – as we can see from Momdani’s win in NY, but there are smart versions and dumb versions of populism. And, while many of the most popular ideas make sense from an avowed Socialist, we are seeing these solutions now on both sides of this political aisle. For instance, President Trump has taken ownership of some businesses and forced others to act against their best interests. Now he is creating a separate business to compete with the free market—TrumpRx—while also forcing price controls in this market.
Trump hasn’t done any of this arbitrarily. The President is attempting to solve the things that trouble our nation. Manufacturing has fled, businesses are actively making decisions to do business outside of the US, and health care costs are increasing.
His belief is that the government can solve all these problems. But, as Reagan said, "The nine most terrifying words in the English language are: I'm from the Government, and I'm here to help." The problem is that the government can wield a baseball bat and force businesses to make decisions that they wouldn’t otherwise make, the government can open and close doors for companies, and the government can do things that the private sector cannot.
For instance, manufacturing has fled the US because of high regulatory burdens and strong unions, not because they want to build products elsewhere just to ship them back to America. The problem is that regulations and unions are cost inflators that provide the financial justification to move manufacturing outside of the US. However, instead of tackling those issues, Trump just threatens fines, tariffs, and court cases if companies don’t bow to his will. So, the companies are giving in. However, this will end up meaning higher prices, less innovation, and a generally inefficient economy in the long run. Not dealing with the root causes of manufacturing flight means more manufacturing today—more expensive prices tomorrow.
Now, to deal with high drug prices President Trump is floating the idea of creating a portal where patients can buy drugs straight from the government.
On the surface this is, again, a great solution. Drug prices are high not because they are expensive to produce, but because the market is so riddled with middlemen and poor incentives. Pharmacy benefit managers force discounts for drugs that they elsewhere charge full price for, or nearly full price. 340B programs are abused by hospitals that then charge multiples of what they paid for the same drugs. And yet the business practices of both hospitals and PBMs all make sense given the way that the Federal government has structured health care public policy. Trump’s solution is to merely have the government get around all of this.
This solves the problem today, but it creates more problems in the future – and that is evident even from day one, with Pfizer announcing that they would provide a discount in order to avoid a tariff (albeit with a government boot on their throat). Government involvement in the market undermines the role of intellectual property, and therefore the future of investment in pharmaceutical research.
Better solutions to drug prices are not only simple, they already exist both in the free market and in draft public policy.
First, Mark Cuban is already proving that retail prescriptions are already possible, and that the prices of medications can be much, much, lower than those offered by an insurance plan or a big box pharmacy. And, truth be told, he doesn’t even have the lowest prices on the market—I pay much less through my own doctor, who also buys his medications directory from the pharmaceutical companies. Neither of these solutions involve the boot of the government. Additionally, Trump’s own US Trade Representative both in his first and second terms has discussed the problematic nature of foreign free riding where pharmaceutical companies are forced to charge lower prices than they do in the US. PBMs are only a part of the market because patients aren’t the true customers of healthcare—businesses, insurance companies, hospitals, and government are.
We need solutions for our problems, but they almost always entail less government rather than more government. President Trump has done an amazing job in identifying the problems that our nation faces, but he is failing to deal with them in a sustainable way that would not only Make America Great, but put Americans on a good path for the future.
Charles Sauer (@CharlesSauer ) is the president of the Market Institute. He has previously worked on Capitol Hill, for a governor, and for an academic think tank.
