Roche announced today that it is stopping US wholesale shipments of Tamiflu to prevent “hoarding”. Hoarding is exactly what they are doing. The move will shock wholesalers while people buying in advance of avian flu like me are shocking some retailers. Distributers are the last link in the chain. As they process this news, all retailers will begin to restrict access to Tamiflu. Rationing at a below market price results in the drug not going to people who value it most.
Higher prices put Tamiflu out of range of the bulk of the market. The only way they benefit from the higher prices is indirectly through the higher tax revenues from higher profits in the supply chain or increasingly as shareholders. Rationing benefits people who get the ration cards or whatever. There is an ubounded loss in efficiency when some people who want the drug are turned away because they have money, but do not qualify for a ration. An optimal policy might be a tax on emergency use that is distributed to everyone in the country equally. Don’t expect politicians to adopt that one.
Doctors, pharmacists and drug companies clearly know best exactly how much to provide becaue they are so good at economics. And they are prescribing, dispensing and producing Tamiflu for the good of the country. Perhaps I know better how many doctors, pharmacists and drug companies the country should have. I think there should be a medallion system like taxis.
Previous posts: Spanish Flu Published, Flu Update
Apparently, they haven’t read my TechCentralStation piece. Here come the dumb stories about “price gouging”:
“They are gouging me–$1,600 for a $700 generator,” complained Aventura resident Jorge Linkewer, who bought the device despite the price. “My kids have medication that needs to be refrigerated.”
Apparently he’d rather have no generator for his kids’ medication at $700, than an actual one for $1600. Because that would have been a likely outcome had the price not increased, to discourage someone from buying one who just wanted to run his big-screen television.
There were 116 million homes in the US during the 2000 census. Now there are a couple hundred thousand fewer homes in the world and a couple hundred thousand more houses that people have been chased out of. That should fuel the housing price outside of New Orleans in several ways. First, more people will be purchasing homes outside of New Orleans. Second, more people will be renting homes outside of New Orleans driving up the price of substitutes. Third, building materials will be in high demand for a while driving up the cost of building new. Weighing against the bubble is the depression a lot of people face about the future.
High energy prices is kind of mixed for housing prices–it raises prices on close-in houses, lowers it on suburb houses, decreases business confidence, but may increase nominal house prices due to inflation.
In New Orleans, we are likely to see some fire sale prices. It is a good time to start a vulture fund to snap up those houses. New Orleans is likely to have a renaissance the same way that San Francisco, Boston and Chicago did after their big disasters.
Iain Murray says there’s no such thing, joining me and the WSJ in continuing to expose this myth. He also says that the usual economic ignorami are sponsoring a bill for a federal anti-gouging law.
I’ve got a better idea.
Paul Dietz suggested in comments that a federal anti-rent-control law should be constitutional. I would think that a federal anti-anti-gouging law (that is, a federal law that proscribed states from passing anti-gouging laws) would be as well, since the Supreme Court has essentially decided that the Commerce Clause will justify anything, and that federalism is essentially dead. After all, state anti-gouging laws cause people to drive across state borders in order to get gasoline during shortages, or more perversely, to drive to states with the laws to get cheaper gas (until it runs out). It’s exactly the same situation as we have with Canada and prescription drugs. So this clearly affects interstate commerce at least as much as a leukemia victim growing pot in their back yard. It might also have the effect of moving modern liberals even further into the previously despised federalist camp, and make them rethink their long-sought desire for Big Brother in Washington.
While I mourn the passage of federalism, we should at least take advantage of it to do some good. I would hope that if we really had a Republican congress, that an anti-anti-gouging law would have better chance of passage than an anti-gouging law. But then, I would have hoped that a supposedly Republican congress wouldn’t have exploded the federal budget over the past four years as this one has…
When everyone was talking about avian flu, I got my doctor to write a Tamiflu prescription that I could get filled before the rush. I just sent off my order for a satellite phone ($1000 including 300 prepaid minutes good for one year). I told them not to hurry so the flood victims could get theirs first. That’s also going to be my present to my dad come December since he lives in Florida–don’t spoil it for him, it’s a surprise. By bidding up the price of goods well in advance of disaster, manufacturers will make more of them.
The best shortage prevention technique known to Man (and provably the only one that always works) is raising prices. Rand brought this up. Now WSJ has joined the act with their piece “In praise of ‘Gouging'”.
Speaking of TechCentralStation, I have a Katrina-related column there (though it’s of general applicability), in which I applaud price gougers.
Hey, someone’s got to do it.
In yet another display of economic ignorance on the part of politicians, Hawai’i has put a cap on wholesale gas prices. I fearlessly predict shortages on the islands, wiki wiki.
NYT columnist John Tierney has announced he will take on all people willing to bet that commodity prices will rise. He just placed a $2500 bet. He follows Julian Simon’s logic (again) that prices have gotten cheaper on everything except human labor since prices started being recorded.
“Non Mutual” was the accusation when The Prisoner was pilloried for not having enough community spirit. Mutual funds are being accused of being non-mutual by Ross Miller in his paper that decomposes an actively managed mutual fund into an active market neutral part and a passive part that looks just like an index. What he finds is that expense ratios on the active part look like about 7% if you consider most funds only have about 10% of their portfolio actively managed and that means the 1% vs. the .3% annual fees for managed vs. index fund has to be attributed just to the managed portion. This is great for hedge funds that if their fund is going up 10% a year only charge 2% fees + 20% of the 10% profits or 4% altogether. That’s quite a bit less than the comparable active mutual fund.
This is make quite a stir in financial circles.
China is in the news these days for buying up Unocal, Maytag and IBM PC. If you check out the latest CIA world factbook you can see that China’s purchasing power is more than half of US with the second largest economy. If you project out the growth rates (9.1% and 4.4%) you can see China catching up to the US in 2015 when we both have $19 trillion economies (maybe $23 trillion adding in inflation).
Year China($B) US($B)
2004 7262 11750
2005 7923 12267
2006 8644 12807
2007 9430 13370
2008 10289 13959
2009 11225 14573
2010 12246 15214
2011 13361 15883
2012 14577 16582
2013 15903 17312
2014 17350 18074
2015 18929 18869
China will continue to grow its economy faster than US because its per capita income is still quite low ($5600 vs $40000 in 2004 est) and will still be less than 1/3 of US per capita income in 2015.
My favorite implication is for space policy. A China committed to space nostalgia (e.g., Moon landings) might get the US to devote thought to rationalizing commercial space policy. Mike Griffin started in this direction.