Brad DeLong's Semi-Daily Journal: A Weblog

One other set of initials probably would rate it as good: BN, or Bill Novelli, the CEO at AARP who made the deal.

The way the drug benefit has been provided screams for price increases from the drug companies. There will be no negotiation over price by Medicare, there will be no import of drugs, there will be a constant advertising and marketing and lobbying push to include drugs under patent in the coverage.

A Doctor Puts the Drug Industry Under a Microscope: Marcia Angell
By CLAUDIA DREIFUS - New York Times

Q. The first phase - the discount card phase - of the new Medicare drug benefit is about to go into effect. Do you, as a newly minted senior, believe it will make prescription drugs more affordable?

A. It's not going to have a major effect. These discounts are very small, maybe 10 to 15 percent. At the rate of inflation of drug prices, they'll be overtaken in a very short time.

Now, the main Medicare drug benefit that goes into effect in 2006 is designed to funnel billions of dollars to the pharmaceutical industry. It's an absolute bonanza for it. The pharmaceutical industry's lobbyists made certain that the legislation contained a provision barring Medicare from negotiating drug prices.

Interestingly, the federal government negotiates drug prices for the Veterans Affairs system and gets very low prices because it is a bulk purchaser. And Medicare would have been the biggest bulk purchaser of all - so it could have negotiated very low prices. That provision allows the drug companies to continue raising their prices faster than the inflation rate, and the drug benefit will soon become unaffordable.

It's a brilliant bill. An amazing piece of legislation that deserves recognition as the major turning point in government-private sector interaction that it is.

At one swoop, this bill sets up a mechanism operated by government to transfer uncountable billions of taxpayer dollars directly into the coffers of the wealthiest multi-national corporations on the planet. No previous bill or even collection of bills comes close to a wealth transfer of this magnitude--not even defense spending measures offer such stunning taxpayer-funded largesse at absolutely zero risk.

(And just to make sure the risk drops to less than zero, the Republican Congress is now pushing through legislation making it illegal to sue a drug company if the drug in question was FDA approved.)

How can you not like this bill?

http://www.nytimes.com/2004/10/10/business/yourmoney/10drug.html?pagewanted=all&position=

One Eye on Drug Stocks, the Other on Election Day
By CONRAD DE AENLLE

A DRUG that helps people lose weight and stop smoking ought to be a big seller, but when Sanofi-Aventis, the French pharmaceutical company, announced success in trials of just such a drug, the company's stock barely budged.

A few days later, in early September, American regulators recommended that AstraZeneca, the British drug maker, not be given permission to market an anticlotting drug, citing safety concerns. There was no muted reaction this time: the stock sank as much as 6 percent the next day.

Shareholders of Merck meted out far worse later in the month. They marked the stock down 27 percent in one day after Merck, based in Whitehouse Station, N.J., said it would halt sales of Vioxx, a top-selling anti-inflammation drug, because of safety concerns.

Investors' tendency to react to negative events and ignore positive ones reflects prolonged adverse sentiment toward drug stocks, which have underperformed the broad market since February. That was around the time that Senator John Kerry consolidated his grip on the Democratic presidential nomination, analysts point out. They note that many investors fear that if Mr. Kerry wins in November, prices of prescription drugs may rise at lower rates than in recent years, or perhaps even decline, dealing a significant blow to drug makers' profitability.

The sector's weakness has reduced the shares of large pharmaceutical companies to prices that analysts and fund managers consider cheap. Many remain leery of buying them, however, and prefer stocks in other segments of health care.

"Without question, large-cap pharma is one of the groups likely to see the most intense regulatory pressure should the presidency change hands," Jami Rubin, an analyst at Morgan Stanley, said in a report on the sector, articulating Wall Street's fears. "The Democratic Party continues to seek greater government involvement in the health care system and is expected to hasten a move toward price controls on prescription drugs if given the political power to do so."

Mr. Rubin finds the market's apprehensions unwarranted. For one thing, Mr. Kerry by no means has a lock on the election; in polls, he has been running at best neck and neck with President Bush. Even if Mr. Kerry wins, Mr. Rubin said, Congress is likely to remain controlled by Republicans, limiting wholesale changes in health care policy.

Nevertheless, the political worries have reduced valuations of American industry leaders. Pfizer and Wyeth have been trading at 15 percent discounts to Standard & Poor's 500-stock index, as was Merck before the recent sell-off. The undervaluation exists "despite our belief that return on invested capital has bottomed out and is likely to show some improvement over the next several years," Mr. Rubin wrote, referring to the pharmaceutical industry.

USATODAY - US Drug Prices Spike After New Medicare Law

"AARP, formerly known as the American Association of Retired Persons, said the prices of brand-name drugs most used by older adults climbed an average 3.4% since late December.

The jump — three times the rate of inflation — was one of the sharpest quarterly spikes since 2000, the nation's largest group representing the elderly said in its report.

Drug manufacturers used "very aggressive pricing practices ... that harm the elderly population's ability to afford those drugs," said John Rother, AARP's policy director.

The findings follow an earlier AARP report showing prices for the same drugs grew 6.9% in 2003. But the quarterly increase since President Bush signed the Medicare bill into law was particularly high, according to the study.

AARP, which supported the bill, is concerned "manufacturers are offsetting the discounts with prices that are higher than they otherwise would have been." Rother said. ***"It doesn't seem to be market driven."***

Well duh! The biggest hikes were for the most used drugs and they were in the 7-10% range. If this continues the prescription drug card "savings" will be wiped out in just a few short years. A total bonanza for Big Pharma.

The who's better on trade question threw me. I know Dan Drezner does not describe himself as an economist but he is still quite good on these issues - especially arguing for free trade. And even though he's a conservative, he cuts Bush zero slack here. Then again - Dan does not trust Kerry to be a free trader either.

http://www.nytimes.com/2004/10/11/business/11CND-TAX.html?

Senate Approves Bill Worth $140 Billion in Corporate Tax Breaks
By EDMUND L. ANDREWS

WASHINGTON - The Senate today approved a bill handing out about $140 billion in corporate tax breaks.

The 633-page bill, which has already been passed by the House, passed the Senate today on a vote of 69 to 17. It is loaded with hundreds of provisions that provide benefits to a wide range of interests, including the General Electric Company, oil drillers, shipbuilders, cruise ship operators, importers of ceiling fans, corn farmers, tobacco farmers and even foreign gamblers.

Despite widespread criticism of the bill as a Christmas tree of special-interest provisions, the House passed it by a vote of 280 to 141 on Friday, and the Senate voted, 66 to 14, on Sunday to cut off a potential filibuster.

But Senate leaders were blocked from voting until today by Senator Mary L. Landrieu, Democrat of Louisiana, who was furious that the final bill did not include $2 billion in tax credits for companies that keep paying employees who are called to active duty from military reserves and the National Guard.

Ms. Landrieu finally won agreement for a vote -- whose effect would be purely symbolic -- on a measure that would declare the Senate's support for giving those employers some tax credits.

Ms. Landrieu refused today to concede ultimate defeat on the Guard and reserves measure. "But as you know, the Senate leadership, unfortunately in my mind, can't dictate to the House leadership," she said at an afternoon news briefing.

A moment later, she said, "I think it's going to be very, very, very difficult for the House of Representatives, for the Republican leadership, over the next few weeks to try to explain their position and to the American public why the tax bills keep flying out of this Congress, one after another after another, and leaving out the Guard and reserve every time."

The largest provisions of the corporate tax bill repeal a $5 billion annual tax break for exporters that has been declared illegal by the World Trade Organization, and replace it with a tax reduction for manufacturers in the United States.

The bill's tax breaks are worth about $140 billion over 10 years, but it is supposed to raise the same amount of money by closing tax shelters, raising customs fees and eliminating the old tax benefit.

Is the survey anonymous? The answers are, of course, but do we know who took it? Like, I don't know if Barro's changed since I last looked, but he was writing defenses of Bush.

"Folks in the right's think tanks, folks writing for the conservative publications, all seem to agree with the folks on the left and in the center that the Bush administration's largest domestic policy initiative is a disaster. "

Well, yes. Folks on the right would be expected to point out that adding benefits to a program that's already going to get unbearably expensive over the next few decades is an extraordinarily bad idea. I tend to agree with that and I'd be the first one to excoriate Bush for such a boneheaded move if not for the fact that his political opposition characterizes this giveaway as "inadequate".

What simply amazes me is that folks on the left are objecting to a drug giveaway program on the grounds that the pharmaceutical companies will be paid for the drugs! This is absolutely insane - are we to object to food stamps because grocery stores are paid for the food given away, or to Medicare because doctors are paid for their services?

An open mystery - an important part of the support for the Medicare bill was the AARP who issued various press releases about how the bill was better than nothing, better than it might be, etc. From what one has heard since about the pressure on people to support the bill, it must be assumed that the AARP was 'made an offer it couldn't refuse'. No one in the press has seen fit to investigate what this offer might have been.