1. Should we treat drugs that kids need to live just like widgets? Some free-markets fans love that one-size-fits-all idea, but it hides unattractive ethics, and injects industrial-scale exploitative pressures into our lives.
2. The current Epipen fuss (+500%) joins prior drug price shenanigans (+5000%), and Uber’s “surge pricing” (700%+), which led some free market fans to complain that people just don’t understand “simple economics.”
3.But that’s backwards. Much “simple” economics doesn’t understand people. You can call huge price hikes “logical and fair” or rational and efficient, but they still feel exploitative, which people don’t like.
4. Markets enacts our ethics on a massive scale, their systemic “fairness” dwarfs personal ethics. And something has gone wrong if a “your money or your life” business plan seems acceptable ($64,000 per month medication).
5. The relevant “simple economics” is the misnamed law of supply and demand. Roughly: Price variation ensures markets “clear.” Rising prices = more demand = more supply, and vice versa. “Clearing” means all supply is sold (but not necessarily used efficiently).
6. So let’s compare two allocation schemes, cost-plus vs profit-maximizing: Say an entrepreneur makes 100 widgets for $20 each. Using cost-plus pricing, she sells all for $100 each = $10,000 revenue & $8,000 profit. Using what-the-market-can-bear pricing she sells all at $500 each = $50,000 & $42,000 profit. Way better for her, obviously. But why is it better overall that 100 customers have $400 less? (How they use that $400 might even benefit the economy more.)
8. That market rules aren’t facts of, or laws of, nature, means we can choose how to shape incentives to guide markets. Our rules needn’t prioritize supplier profits over other civic goals (like not letting kids die of allergic reactions).
9. Note, approaches like cost-plus don’t limit profit—to make more, satisfy more customers. Free-marketers might prefer price-gouging, but it’s not self-evidently beneficial (and market logic is “cognitively unnatural”).
10. Before heeding the “free-markets-in-everything” crowd and unleashing free-market forces to (mindlessly) coordinate countless transactions, remember how flat-out wrong economists can be (+ they use “rational” and “efficient” differently, sometimes misleadingly).
11. Free markets neither empirically nor logically convert self-interest to social good, nor generate “spontaneously ordered” optimal outcomes. Believing it’s that simple is blind love of unrealistic ideas (= the last unlaughed at utopian ideas).
12. Markets do many great things, but we shouldn’t delegate all our ethics to them. And market-lovers could do more to fix their ills. Nothing compels us to let kids die for lack of Epipens, or to let Californians water lush lawns while the poor’s wells run dry, or make musical toilets while some starve.
13. Widgets and medicines aren’t ethically equivalent, so why auction them as if they were?
14. Those who see competition as the cure, forget that unregulated competition in biology routinely delivers disaster. Profit maximising businesses seek monopoly-like conditions, in a “mutually assured exploitation” game (too bad if you a need a new drug to live).
15. We can guide the massive power of market forces to support our civic goals. Perhaps even America’s declared founding goal of rules “wholesome … for the public good.”
16. But if you’d prefer a world safe for price gouging, let’s do more “simple economics” training: perhaps market-gouging drills in kindergarten? Or daily pledges “one Nation under” profit … dedicated to the idea “that government of the people…” for the profit, shall not perish from the Earth?
Illustration by Julia Suits, author of The Extraordinary Catalog of Peculiar Inventions, and The New Yorker cartoonist.