How Uncle Sam Crowds Out BioTech

When, as is the case now, government uses its coercive powers of taxation and financial regulation to control capital, there is far less available to markets for sustainable economic growth. As a result, the economy suffers.

Exhibit A: the FDA and its regulation of American drugs.

The problem is this: Regulators impose costs that are extremely difficult to measure. We hear about birth defects caused by thalidomide when pregnant women ignored warning labels and used the anti-nausea drug to self-treat morning sickness. We don’t hear about the people who died of malnutrition because thalidomide, the only drug that let them eat normally, was yanked off the market. We hear about side effects caused by approved drugs. We almost never hear about the suffering and death caused by not approving drugs. The pro-government mainstream media, of course, inevitably fail to present regulatory issues fairly.

In addition, economists have long pointed out that regulatory agencies tend to be ‘captured’ by those they regulate. Over time, due to various factors, regulators tend to protect the established interests of the industries they regulate. This was clearly the case with the home mortgage industry.

In the case of drugs, the same dynamic exists. The barriers that must be vaulted by new drug makers are enormous. These barriers are both time-consuming and expensive, which is often the same thing. The best way to understand FDA rules, in my opinion, is to realize that the imposed costs are just high enough to keep Big Pharma safe from most upstart innovators.

Patrick Cox
for The Daily Reckoning

The Daily Reckoning