Seems like I'm posting a lot about politics lately, doesn't it? It's probably because with the election coming up the stupid factor is increasing to near astronomic proportions. Take this bullshit for instance. The Feds have made it illegal for US citizens to buy cheap drugs from outside of America. Ostensibly this is to guarantee quality through Federal controls on pharmaceutical companies. That by itself is total horse shit but I'm not going to get into the reasons why in this particular rant. No, this particular rant deals with the exceptionally warm and deep pile of horse shit that our politicians are currently attempting to spread.

They are now trying to pass legislation to allow people to purchase from foreign drug markets and their reasoning is just as bad as it was for the current embargo - they say that we can save money by buying drugs from Canada. They are using this as a sop to the masses. "We feel your pain! We'll let you buy cheap drugs, that's how much we care! All your problems will go away with cross-border pharmaceuticals!"

Bullshit.

To illustrate, let's take a theoretical drug called politiciansuckassizine, or PSZ for short:

PSZ is a long lasting mood enhancer that counters the rage and fury that people feel at their politicians. PSZ is a very popular drug and a goodly chunk of the people in the free world use it in some form or another. The numbers work out to roughly 20 million Americans and 125,000 Canadians proportionately. People who use PSZ use it about once a month when the headache from politics becomes too much to handle.

The company that produces PSZ charges what they can get in America, $3 a pill, and makes a nice profit on the drug. They also sell in Canada but the government imposed price schemes only allow them to charge fifty cents a pill. They don't make a real profit but they aren't usually losing anything either.

Let's look at just the numbers at this point.

Cost to produce: $.50 per pill
Profit per pill, US: $2.50
Profit per pill, CAN: $0.00
Annual Usage, US: 20,000,000 users x 12 uses a year = 240,000,000
Annual Usage, CAN: 125,000 users x 12 uses a year = 1,500,000
Annual Profit, US: $600,000,000
Annual Profit, CAN: $0

Obviously the company is supported by American sales, not Canadian. Research and Development, profit, employment, everything en totale comes from profits earned in the American market.

Now the American Federal government decides that people can buy PSZ from Canadian distributors and they do so in droves. The company sees orders increasing for Canada and decreasing for America. With each sale that goes through Canada they lose profits. After three months 25% of American sales have moved to Canadian distributors. The numbers do not look good.

Projected Quarterly Profit: $600,000,000 / 4 = $150,000,000 (note this is all from US sales)
Actual Quarterly Profit: $112,500,000
Profit lost in first quarter: $150,000,000 - $112,500,000 = $37,500,000

They cannot raise their price in Canada because the Canadian government won't let them. They raise the price in America but this is an artificial move that drives down usage and spurs additional cross-border purchases. If they allow this leaching through Canada to continue they will theoretically be supplying all of the PSZ in North America at zero profit. Already they have had to cancel R&D on three promising lines of medication when they closed a research facility in South Carolina and laid off 125 people there. The future of the company is at stake.

They pull the plug on Canada. They either stop selling to Canada period or they sell on a strictly controlled basis. Canada acts quickly to keep their needed PSZ inside the borders by putting drug sales to foreign markets under Government control.

Americans are now paying $3.50 to $4.00 for PSZ.

This is a simplified example but it is by no means unreasonable. In real life the drug company would not sell PSZ to Canada unless they could realize some profit unless they had intangible benefits that made it worthwhile. It is possible that the Canadian government would not take control of drug sales when they faced pharmaceutical rationing but that is the most likely outcome. It doesn't really matter in any case as American purchases would drain the Canadian rations in mere weeks if artificial controls are not implemented and then everybody would be paying American market prices.

This is an excellent example of what artificial controls do to a capitalist marketing system. America put an artificial control in place to isolate their consumers. Canada put an artificial control in place to regulate pricing. When America is no longer isolated their much larger market will quickly overwhelm the artificially maintained Canadian market (unless additional artificial controls are put in place).

It is also an excellent example of how our politicians are more eager to court the simpleton's vote rather than pursue a difficult but realistically rewarding fiscally and economically viable plan.

(Hat tip to Phillip Coons)