Why can't we have the government fund pharmaceutical research?
Consider the 2nd avenue subway in NYC. We've been building it since 1972. It's still under construction and is the most expensive subway ever. Compare to the Delhi metro: https://en.wikipedia.org/wiki/Delhi_Metro#/media/File:Delhi_...
What big projects of any sort have we done a good job with lately? The closest we've had to a success might have been our second attempt at building an ebay for health insurance.
When we run our current crop of big projects well, I'd think about expanding into more. Until then, lets not take chances with something as important as pharmaceutical research.
It also lists the Hudson Yards Redevelopment Project as an on-going $20 billion megaproject, which broke ground in December 2012 and appears to be doing well. It's the largest real estate development in U.S. history.
Whatever the aesthetics of people getting rich from treating sick people, on the evidence, it's actually very effective.
I'm not sure how much it affects the argument, but the Fed is not a governmental agency. It's a stand-alone corporation whose officers are appointed by the government.
When you sever the external link between the product going out, and the money coming in, you destroy some of the positive or negative feedback loops that take into account what people actually want and what they can do.
There has to be a hard external link between the outputs and the inputs, or you end up with a situation where rent-seekers charge in and gum up the works, absorbing resources without doing anything economically useful in exchange. The instant you guarantee a cash flow independent of actual results, you create sinecures, and those offices fill up and never go vacant again.
You could end up with situations where the agency cures a disease, but spends 100 times more doing that than it would cost to develop an acceptably effective treatment and also create a foundation that could pay to produce and distribute that treatment to everyone who gets it any time within the next 5 billion years.
Yay, woo, we cured it. But our inability to effectively prioritize resources meant that 99% of that cure budget was not spent on researching diseases that have a far greater economic impact. Oops.
Someone has to decide whether the money is well spent. And if that someone isn't everyone, then there is an agency problem, and rent-seekers scramble over each other to be the someone, so they can easily profit from that decision-making power.
Now, before anyone goes shaking their pompoms for the free market, I should mention that we haven't actually had one in medicine for a long time, thanks to the godawful market distortions that currently exist in the healthcare sector of markets where most treatments are researched. But at least that market-side link in the feedback loop still exists to some tiny extent, no matter how weak or tenuous it may be now.
So an independent research agency would be great for about 15 years. After that, it will start to become a gigantic black hole of waste and inefficiency.
Of course there is some, such as disparaging attacks on why we should put shrimps on treadmills, to the other extreme where the government, following public demand, funded a lot of HIV/AIDS research.
Also, as counter-example, the US government funds research in tropical diseases, not because it's a great photo-op for the next election, but also not completely altruistically - the military wants to be able to go into tropics and not have many of its soldiers die.
So the evidence so far says that your supposition isn't the whole picture by far.
It's really not clear that government could develop drugs more cheaply. If you want to bring down the price of drug development, the primary thing you need to do is to discover which of your candidates is not promising and kill them much earlier in the pipeline. This sort of task is not one of government's core competencies (particularly if the legislature decides it wants a say in things).
http://www.slate.com/articles/business/the_customer/2011/03/...
/s
Why should it? The free market is the most powerful incentive there is. Government control of the pharmaceutical industry has been tried before, in the Soviet Union and it was a mess.
Here's an excerpt from Michael Binyon's "Life in Russia" (1983)
"How often are foreigners asked by Russian friends to bring back drugs for sick relatives, and how often does the press complain that cheap, effective Soviet drugs are simply unobtainable! Take the case of a researcher who discovered an efficient drug to stimulate growth and spent fifteen years trying to get it on the market. In spite of repeated clinical tests, scientific endorsement and an urgent demand from people with deficiencies in growth hormones, the drug was unavailable. Instead manufacturers were producing a less effective foreign product which first came on the market twenty-two years ago.
What is on sale in the shops or in special kiosks is so outdated or so general in its effects that few people buy the product. Packets of good pills are so valuable that they are sold at special foreign currency counters in tourist hotels. Doctors issue prescriptions even if the hospitals have no supplies, leaving it to hapless patients to use their wits in trying to get hold of what they need. There are plenty of stories of dentists working without adequate supplies of anaesthetic, of polyclinics unable to supply a full course of treatment, of chronically sick people living from month to month, never sure whether their prescriptions can be renewed.
The drug industry suffers from none of the failings its Western counterpart is accused of: there is no risk of profit-taking at the expense of safety, no aggressive marketing of unnecessary drugs, no costly duplication of research laboratories. Instead, research, development, testing, approval, manufacture and promotion are organized as a public service. But the links between each stage are so weak that the time lag between research and retailing may be up to seven years. Responsibility for pharmaceuticals is divided between the Ministry of Health and the Ministry of Medication Industry. Everything used to come under a subdivision of the Ministry of Health, but because of poor results a separate ministry was created in 1967. The Health Ministry is still responsible for resarch, testing and licensing of new drugs. The new ministry deals with production and quality control. Most research is carried out in state laboratories, and if an effective product is discovered it is sent to the Ministry of Medication Industry which finds a suitable factory to try it out. Test batches go back to the Ministry of Health for clinical trials, and often, if approved, to another plant for mass production. A separate agency handles distribution and marketing, and quality control is the responsibility of an independent state inspectorate.
Theoretically each stage leads to the next with no waste or duplication. In practice the chain becomes a bureaucratic nightmare. The institutional separation means that each body operates according to its own terms with little concern for the total process. By the time the product gets to the chemists' shelves, it has often been rendered obsolete. Research institutes have no real leverage to press factories to put their results into production, and have little incentive to do so. As for the manufacturers, they cannot get back their initial production costs because of a rigid pricing system, and find it cheaper and easier to stick to the older and tested lines for which there is already a market.
The lack of advertising means that doctors are often unaware of what is available. Sometimes they prescribe drugs that have long been withdrawn from the market. Similarly, since brand-names play little part in the pharmaceutical industry, a factory manager is not too concerned about the name and reputation of his plant, and this breeds indifference.
The Russians have tried various remedies. The simplest is to import drugs."
Gilead spends almost a billion dollars PER QUARTER on R&D expenses. Amgen spends over a billion per quarter, Celgene spends 1.3 billion per quarter. Most of those discoveries that come from those expenditures will never see the light of day. So how else are they to recoup their costs? If the government started funding pharmaceutical development at the tune of 25 billion per year, how would that infrastructure suddenly be created? Would they also need to get into the manufacturing side as well? Manufacturing many drugs is not a trivial process. Then there's the marketing expense -- doctors would need to be aware of the new drugs. There's distribution involved. Getting the government into the pharmaceutical business would be a massive, massive expenditure and still result in lower quality than the private sector could produce because the competitive forces would be eliminated. See the success of pretty much any Iron Curtain industry compared to the US and Japan for examples of how this goes bad and ultimately results in lower quality. Can you name a single Russian electronics manufacturer that you can buy in the Frankfurt Duty Free shop?
Of course the argument would be "we can do it more efficiently than the Soviets" -- sure. That's the same argument Communists use to suggest that "this time it'll work." I'd rather trust my life to someone that will profit from my survival than to a government that is influenced by whatever political forces are at play. Then you have the issue of what drugs deserve public funding and what drugs do not. That becomes a political decision and not a market decision. That's very dangerous.