SHIFTING RESOURCES. Betsy's Page recommends a City Journal article that details the cost advantage small-country health ministries obtain by negotiating off-peak prices for pharmaceuticals.

One reason for America’s drug dominance (though far from the only one) is America’s unsocialized medicine. Here, with the exception of a few programs like Medicaid and the VA system, the government doesn’t regulate the price of drugs, so when a company invents something big—the latest miracle cancer drug, say—it strikes it rich, making its executives hunger for more. Take away the profit motive, as government-run medicine often does by forcing drug companies to sell at discounted prices, and innovation will dry up.

The article refers to another City Journal article suggesting that France's health ministry obtains below-cost prices for U.S. pharmaceuticals, with the companies making up the losses by raising prices in the U.S. I suspect there's something wrong with that claim: a U.S. company that does not get the French contract, or says no to the French monopsonist, will be able to profitably undercut the price the company that gets the French contract posts to make up its losses. I'll read that article and follow up later.

Mrs Newmark expresses her reservations about government monopsonists suppressing future inventions by reducing the rewards.

If the profit motive is removed from the American market through government regulation of health care programs trying to lower costs by negotiating lower drug prices, the drug companies will respond by doing less of that expensive research and development. And the result will be the loss to all of mankind of future new medicines. We won't know about what we have lost. No one knows of the discoveries unmade. And that is one of the main reasons why I am so strongly against the sort of governmental tinkering with our medical industry that the Democrats are espousing. For we know that if the government becomes the major supplier of health care, there will, surely as night follows day, be governmental edicts coming out about the prices that they're willing to reimburse drug companies for expensive drugs. And gradually, the companies will stop their research into new medicines.

On the other hand, there might be an infinitely elastic supply of grant-grubbing academicians willing to undertake the research, leading to a different set of conflicts of interest in the medical colleges. There will be no shortage of Public Choice dissertations in that event, as researchers compare the profits of private businesses in a third-party-payment environment with the indirect cost returns to medical colleges in a rent-seeking environment.