Thomas Sowell

A TOURIST in New York's Greenwich Village had his portrait sketched by a sidewalk artist, who charged him $100.

"That's expensive," the tourist said. "But it's a great sketch, so I'll pay it. But, really, it took you just five minutes."

"Twenty years and five minutes," the artist replied.

The same misconception of costs runs through the much more serious issue of the prices of medicine and government regulation of those prices. When a pill whose ingredients cost a quarter is sold for two dollars, that is an open invitation to demagogues to begin loudly denouncing the pharmaceutical drug company's "obscene" and "unconscionable" profits at the expense of the sick. But the people who are doing this are counting only the five minutes and ignoring the 20 years.

The physical ingredients of the medicine are its cheapest ingredients. The ingredient that costs millions of dollars -- sometimes hundreds of millions -- is the knowledge gained from years of research, and trial and error, which finally results in the creation of a new medicine. That is what the price of the pills has to cover, if we expect investors to continue to pour vast sums of money into drug companies that are trying to discover new cures for such diseases as cancer, AIDS and Alzheimer's.

Other companies, manufacturing generic equivalents, pay only the costs of the physical ingredients, having copied the enormously expensive formula free of charge -- legitimately after the patent has expired and not so legitimately in other countries, where patent laws are not taken as seriously as in the United States. The company that simply uses someone else's formula free of charge can sell the same pill for 35 cents and still make a profit.

Somebody has to pay the high costs of discovery or the development of new drugs will be slower and therefore more people will needlessly suffer and die. While allowing patent laws to be over-ridden by politicians allows some people to buy the drug at low prices, based on the low current costs of manufacturing the medicine, that just leaves the far greater overhead costs of creating these medicines to be paid by others.

Worst of all, it leaves the even higher costs of needless pain, suffering and premature death to be paid by those whose relief is delayed by policies like these, which slow down the development of new medicines to cure their afflictions.

Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

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