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Who Cares If Production Drops? - 07/09/2009

Whether or not they practice what they preach (and we know they don't), Republicans are often the ones arguing for a freer economy, using arguments that indicate regulations and controls will drop Gross Domestic Product (GDP) for X amount.  Those arguing for the controls might respond, "So what?  Who cares if profits drop a little, as long as everyone has (whatever it is they're proposing)?"

That sort of statement coming from the average person is understandable.  But that statement coming from someone who's either an economist or elected to office should be worrisome, as it displays a complete lack of understanding of an economic framework.  "Business" isn't something that we as a society simply allow because it's fun, though it's often seen that way.  Further, it's also seen that if business doesn't provide what a particular group of people want, then it's time to "get serious" and turn the venture over to the government.

Here's the fundamental flaw.  Business is not a hobby.  Human beings must produce in order to survive -- There's no getting around that.  There is no magical food/water/clothing/shelter dispenser from which all of our necessities come; we have to create them.  Our desire to live is what drives us to produce.  Our desire to live a quality life is what drives us to produce more, better, faster, more efficiently.

A popular industry to attack are the pharmaceutical companies, especially now that the administration is talking about "health care reform".  They are the ones that produce the drugs that save so many lives, and they're demonized for that success.  Some life-saving drugs are very pricey, so it is proposed that Congress implement price controls to keep prices down (the reason they're pricey in the first place is Congress' fault to begin with, but that's another topic entirely); so that they present us with the choice of expensive drugs, or cheap drugs, with the "correct" choice being superficially obvious.

But that's not the choice.  Because if drug companies are forced to lower their prices, it will either cause them to reduce their services, reduce their ability to provide life-saving cures, or simply remove the motivation to seek and create cures.  So the real choice comes down to expensive drugs, or no drugs.  When you understand the fundamental principle behind this reality, you'll be further ahead of most others in economic understanding.