Miguel has touched on this twice, but I wanted to poke at it too.
This is a real Tweet from Presidential Candidate Robert Francis “Beto” O’Rourke:
It is a Hallmark of the Left that they have no, I mean absolutely zero, none-what-so-fucking-ever, understanding of economics.
They are governed entirely by emotion. That is why a guy like Beto feels entirely comfortable saying something like this. Because he feels that insulin should be cheaper and guns should be more expensive because he likes when diabetics get insulin and he hates guns.
The reality of the pricing of each has no bearing at all on the other.
Let us explore this, shall we?
Why are AR-15’s so cheap?
Once upon a time, they were not. Let us not forget the bad old days of the AR market when a cheap AR-15 was in the $700 or $800 range. There were only a few AR-15 Makers and most of them began with ‘C’ ended with ‘t’ and had a dancing horse engraved on them.
Then three things happened right about the same time. The Clinton AWB ended and the wars in Iraq and Afghanistan began. The ATF also had a bit of a culture change under the GW Bush administration. For most people, they might not have noticed, but for the industry, they became more of a regulatory body like the FDA and became a lot less antagonistic to gun makers. It became considerably easier to become a manufacturer.
Then some economic magic kicked in, three little words “economy of scale.”
If you think that AR-15 manufacturers make all the parts of their guns, you are wrong. There are several forging houses that slam out uppers and lowers. There are quite a few barrel makers. There are lots of machine shops that can make the little parts in the fire control and bolt group. Even more heat treaters to heat treat them.
Most current AR-15 makers are really assemblers, making just receivers with an FFL and buying the rest of the parts. The big names will also make barrels, bolts and a few more of the “core competency parts.”
It only requires an FFL to work with serialized components, so there are a lot of places than are subcontracted out to make parts that don’t require an FFL.
So, the AWB ended and people wanted “pre-ban” configurations. There were lots of parts makers making huge volumes of parts for military contracts. There was an explosion in small machine shops that got an FFL and could take a forging, turn it into a receiver, buy the rest of the parts from subcontractors and start making AR-15’s.
Think about all the smaller AR makers that took off in recent years: Bravo Company, Daniel Defense, Double Star, Anderson Manufacturing, etc. There is a glut of makers that do only AR-15’s.
This high demand drove an even bigger supply and the price went down.
When Obama got elected and the demand exceeded the supply, prices went up. When Trump got elected, the supply which had gone up to match the Obama demand, now exceeded the demand under Trump and prices bottomed out.
It’s simple supply and demand economics. How much some politician thinks an AR-15 should cost because they hate guns has nothing to do with it.
Now, what about insulin?
It’s the same thing, economics.
Good Rx has an article on the costs of 22 different brands of insulin. Miguel was right about the cost of insulin:
Prices of Novolin and Humulin (traditional short- and intermediate-acting insulins) have turned south, while prices of modern rapid- and long-acting insulins continue to go up. On average, traditional insulins now cost less than half of what modern insulins cost.
Why? Understandably, traditional insulins have always been cheaper than their newer competitors. Modern insulins offer better blood sugar control but are synthetic analogs of traditional insulins, which makes them more difficult to produce.
Additionally, when patents on Humulin and Novolin expired around 2000—after protecting these brands from competition for nearly 40 years—manufacturers Eli Lilly and Novo Nordisk have had to test new pricing strategies to remain competitive.
Last March, for example, Novo Nordisk partnered with CVS to offer Novolin at roughly 80% less than its normal list price. Both Novo Nordisk and Eli Lilly have also worked with Walmart to heavily discount Novolin and Humulin under Walmart’s ReliOn line of insulin products.
Economic competition at it’s finest.
The newer stuff is much more expensive. It’s also still being protected by patents and the extra features, such a the high concentration stuff that allows the use of the tiny “pain-free” needles add considerably to the cost.
If you are willing to use a syringe you fill yourself from a glass vial you have to keep in the refrigerator, insulin can be cheap.
Here is the kicker, that stuff still works and is still good for most patients.
Doctors are reluctant to prescribe older insulin products — the ones that are eligible for generic competition, according to the American Medical Association. That’s despite the fact that research shows that many people with diabetes respond just as well to older insulins, according to research published in the journal Diabetes Care. A 2014 study from the Institute for Clinical and Economic Review also found that there’s adequate evidence to suggest older insulins are just as effective as newer insulins for people with type 2 diabetes.
There are a few problems that cause this. One is that doctors get a lot of perks from pharmaceutical companies for prescribing the latest and greatest in drugs. It’s not exactly “kickbacks” because it’s not money, it’s just the rep ordering a catered lunch for a 15 minuted presentation in the office.
Another one is a form of patent abuse called “evergreening.” This allows a pharmaceutical company to renew a patent by changing a minor secondary chemical in a drug (a buffer or something like that) without affecting the primary formulation.
As an R&D engineer, I believe deeply in the need for patents and intellectual property to promote research. That doesn’t excuse patent abuse which drives up prices without the accompanying R&D improving the quality of the product.
There is also the issue with just how long and how much it costs to get the FDA to approve a drug. Even generics have to go through an approval process to make sure that the final product meets FDA standards.
New drugs can take 12 years to hit the market and cost a few billion dollars. Even something like clinical trials is up to $20 million.
So…
If you want to lower the cost of insulin for patients, what can you do?
The answer is: take a page out of the playbook for making AR-15’s so cheap, i.e., economic competition.
Rewrite patent law for pharmaceuticals that protects R&D but prevents evergreen patent abuse.
Ease the burden of going to market, including on generics from off-patent drugs. Make the process faster and cheaper so smaller drug companies, or even startups – can have a higher ROI and would be willing to get into the patent game.
Tighten rules for doctor kickbacks, go so far as preventing pharmaceutical companies from tracking which doctors prescribe their name brands the mosts.
Give more leniency to pharmacists to vary prescriptions. Allow the pharmacist to work with a patient on choosing insulin that best fits their budget, and explaining to the patient how that form of insulin works. If a patient can’t afford the expensive long-acting insulin, let the pharmacist change the script to a cheaper short-acting vial form, and not require the patient to have to go back to the doctor. Remember that a pharmacist (not a pharma-tech) is a Ph.D. and usually knows more about the drug than the MD.
What made AR-15’s drop by half in price over the same period that insulin doubled in price is the same thing, supply and demand. The gun market a loosely regulated free market system driven by supply and demand and prices went down. The insulin market didn’t have that and prices went up.
Macroeconomics is not a hard subject to learn.
Of course, Beto being a hard Leftist doesn’t know macroeconomics so he things that the government should be able to specify prices at a whim.
He will make insulin cheaper by fiat, which will only lead to shortages.
He will try to make AR-15 more expensive (and probably will) with a ban, which is nothing more than an artificially imposed market shortage.
Neither idea will save lives, and in the case of creating an insulin shortage, will cost more lives.
The Soviet Union decided what prices would be and people went hungry and stood in breadlines without shoes. Venezuela did the same thing and history repeated itself.
Anybody with an understanding of macroeconomics gets that. Beto doesn’t and his feelings about how much things “should” cost will only cause more problems.
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