President Trump is cleaning up many of Joe Biden’s regulatory messes…, but then there is his plan to import drug price controls. He’s making this one worse.
Days before Christmas, the Centers for Medicare and Medicaid Services (CMS) proposed a 560-page regulation to implement the President’s “most-favored nation” (MFN) plan in Medicare. The point is to force drug makers to sell drugs to Medicare at the lowest price available in other developed countries.
This is bad policy for many reasons, but it’s also a government double-cross. More than a dozen firms struck agreements with the Administration this year to boost investment in the U.S. and to sell medicines directly to consumers at lower prices—supposedly in return for a reprieve from Mr. Trump’s threatened tariffs and most-favored nation regime. Now Mr. Trump looks to be playing them for suckers.
The CMS proposal would require drug makers to pay rebates to Medicare covering the difference between prices in the U.S. and the lowest price in 19 countries, including Canada, the Czech Republic and Sweden. While rebates will vary by drug, the kickbacks to Medicare could be upward of 80% of list price.
Most of these countries have government-run systems that restrict access to novel medicines for budgetary reasons, so their patients must wait longer to get them, if they ever do. Mr. Trump’s plan will reduce the incentive to sell drugs in these countries since they’d then have to match those ultra-low prices for the much bigger Medicare market.
Chinese biotech firms fast would be poised to take global market share from U.S. drug makers. Mr. Trump’s plan would also reduce the incentive to develop innovative medicines in the U.S. if firms don’t think they can make a profit to recoup their investment.
Advocates contend that minimum-wage hikes increase incomes and reduce poverty, but that depends. The government can force an employer to pay a minimum hourly rate, but it can’t force the employer to hire someone in the first place, or to guarantee current employees a certain number of hours. Minimum-wage workers who keep their jobs and who retain the same number of hours benefit from an elevated minimum wage. But some employees will be let go, others will see their hours trimmed, and still others will never be hired because they’ve become too expensive to employ. These are only some of the trade-offs involved in increasing the minimum wage.
“This is a bad way to deal with affordability concerns,” says American Enterprise Institute economist Michael Strain. “Businesses have to absorb higher labor costs in some way, and one way is by raising consumer prices. Another way is by reducing the number of people they employ. And things become a lot less affordable when you lose your paycheck.”
In a forthcoming academic paper, Mr. Strain and Jeffrey Clemens analyze changes to the minimum wage in the decade preceding the Covid pandemic. They conclude that large increases harmed employment prospects for people with limited skills and work history—the same group who have experienced the most erosion in purchasing power since the pandemic. The authors estimate that “relatively large increases in minimum wages reduced employment rates among individuals with low levels of experience and education by just over 2 and a half percentage points.”
Megan McCardle corrects someone who’s appallingly ignorant of both economics and history. (HT Scott Lincicome)
Jeffrey Blehar bids adieu to 2025. A slice:
Zohran Mamdani, the new and splendidly diverse Democratic nominee for mayor of New York City, is revealed to have lied about his race on his college applications — apparently, rich and ethnically Indian upper-class children get a bad shake with admissions committees, so he marked himself down as “African-American,” despite being neither. (Later, he became an American citizen; he remains non-black to this very day.) In other racialist news, Elon Musk, still smarting from the DOGE experience, proudly rolls out his new AI creation “Grok” to Twitter/X, a handy chatbot designed to give only “truthful” answers, without woke fear or favor. It takes exactly six hours for online trolls to feed it enough carefully-tailored prompts to turn it into MechaHitler, at which point it is hastily shut down for retooling, like a failed Robocop prototype.
