Allowing the Government to Compete in the Free Market

It’s been two months since the November elections. The new Congress has been at work for almost two weeks, and after many long years has finally passed a bill authorizing the federal government to negotiate with drug companies on behalf of Medicare recipients. “Foul!” cry many Republicans. “It’s anti-competitive! Socialist! Contrary to free market principles!”

“Now wait a minute,” says the editorial board at the Mankato Free Press. Allowing the government to be a player in negotiating for better drug prices is expanding the free market, not shutting it down. In its Sunday editorial this week titled “Medicate drug makers with markets,” the paper writes:

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U.S. drug companies have for too long been on a diet filled with government fat. Their appetite for government desserts has swelled their underbelly. It’s time to medicate these drug makers with the remedy of the free market.

The U.S. House of Representatives passed Friday a bill to allow the government to negotiate drug prices with drug companies, something that was prohibited under the new Medicare prescription drug law.

The vote was 255-170 with 24 Republicans voting with Democrats, none of whom voted against the bill. Minnesota Republicans Michele Bachmann and John Kline voted against the free market solution to a price-gouging problem. [Republican Jim Ramstad voted for it.]

Still, it’s refreshing to see Congress adopt an idea right out of a Business 101 textbook. If you buy in large volumes, you should be able to negotiate a lower price per unit with the seller. The seller sees this as a good deal too. They can make as much profit, if they sell more units, even if the profit margin per unit is somewhat lower.

This should be a “Well, duh!” moment for most free marketers. Even deposed 1st District congressman Gil Gutknecht, long an advocate for opening the domestic drug market to foreign competition, favored allowing the U.S. government to compete in this multi-billion dollar market. And why not? The governments of every other major industrialized country