Me: Just out of curiosity, how did you calculate what the most efficient rate of long-term investment in drug research would be, absent a process of free market competition?

Steve: I did no such calculation. I trust that the efficient level of investment will be determined by estimates on the return on capital. Since that return will be lower in the face of lower profits … there will be an adjustment downward in the amount of R & D spending for the development of new drugs.

Ceteris paribus, sure. The question is why this is supposed to be worrisome, or even worthy of remark. If the U.S. government dropped agricultural price floors and subsidy programs tomorrow, that would probably reduce investment in domestic agribusiness, perhaps quite dramatically. If so, so what? Is that supposed to be “bad news” for people who plan to eat lunch in the more distant future?

Greg Mankiw: My interpretation: The Dems will likely give us lower drug prices and less research into new drugs. Good news if you plan to be sick soon. Bad news if you plan to be sick in the more distant future.

Garth: Perhaps I worded poorly…what I mean is since they are already given temporary monopoly power to pay for their R&D costs etc, why give them MORE by making it impossible to compete?

Steve: Because there is a cause and effect relationship between potential profitability and the amount of capital invested in a venture. A venture with potential for only minimal profits will only attract minimal investment. A venture with enormous potential for profits will attract lots of capital. The US pharma industry has been the most productive in the world at producing new drug therapies because it is highly profitable. Reduce the profits, reduce the investment.

Greg and/or Steve:

You both seem to be worried about the possibility of too little money being invested in long-term drug research.

Just out of curiosity, how did you calculate what the most efficient rate of long-term investment in drug research would be, absent a process of free market competition?