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February 12, 2014

Another NYT Reporter Mugged By Bent Cost Curve

Perusing the Paper of Record has been unexpectedly entertaining of late:

What drives shortages is often a mystery.

...Economic factors are also a contributing factor. Narrow profit margins are making some drug companies reluctant to invest in fixing old production facilities. Changes in Medicare reimbursement and the role of group purchasing organizations, which buy drugs on behalf of hospitals, could also be contributing, by further reducing prices that producers get for the drugs.

Mein Gott im Himmel! Is the Times seriously suggesting that capping prices without reducing cost might cause business owners to shift resources to more profitable product lines? Egad - that's exactly what they're suggesting!

... in a peculiarity of the generic drug industry, a drug is often made by only a few producers, making it difficult to mitigate the effects of a shortage when it happens. The accountability agency’s report cited a study that found just three manufacturers produced 71 percent of the country’s sterile injectable cancer drugs in 2008.

What is more, generic drug producers have significantly ramped up the number of drugs they are producing, pumping out many different drugs on a single production line, which stretches already limited factory capacity and creates a situation ripe for quality problems, the report said.

One study it cited found that production in the sterile injectable market had increased by half between 2006 and 2010, without a similar rise in manufacturing capability. Manufacturers, motivated by profit, will often choose to increase production of higher profit drugs on their busy factory floors, even if that means risking a shortage of less profitable drugs.

WHO COULD POSSIBLY HAVE FORESEEN THIS???? It's almost as though the real world operates under a set of rules (commonly referred to by the unwashed masses as "cause and effect") incomprehensible to politicians. A world where reality is kept strictly at arm's length. CWCID.

In related news, the EPA (following the wildly successful example afforded by the ACA) shows it can bend the cost curve too!

An Obama administration official has said that the new clean coal rules could increase electricity prices by as much as 80 percent.

Dr. Julio Friedmann, the deputy assistant secretary for clean coal at the Department of Energy, told House lawmakers that the first generation of carbon capture and storage technology would increase wholesale electricity prices by “70 or 80 percent.”

...“The precise number will vary, but for first generation we project $70-90 per ton (on the wholesale price of electricity),” Friedmann said. “For second generation, it will be more like a $40-50/ton price. Second generation of demonstrations will begin in a few years, but won’t be until middle of the next decade (2022-2025) that we will have lessons learned and cost savings.”

Friedmann added that these high costs could not be made up by power companies through increased production volumes.

Oh stop complaining. You didn't really want all that inferior, plentiful, cheap power did you? How can you be so selfish? We'll all be much better off in the long run.

Posted by Cassandra at February 12, 2014 07:02 AM

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Well, you know, if these drug and energy companies only were motivated by something other than profit, we wouldn't be having this conversation. Sure, you could say that we'd probably be too ill surf the internet, never mind pedaling the bike to generate electricity, but then you'd be wrong.

Posted by: spd rdr at February 12, 2014 11:23 AM

Well, the answer here is as plain as the nose on my face: Obama should issue an executive order demanding that businesses stop keeping track of whether revenues exceed costs.

They ought to be willing to stay in business to help their fellow Humyns eliminate income inequality and economic injustice instead of fretting over whether owning a business is "worth it", or where the money will come from to pay bills and salaries. Imagine how liberating it will be! Companies can FINALLY pay everyone what they feel they're worth without the mundane details of accountability to investors or incredibly unimportant details like making sure no one's paycheck bounces.

It troubles me that the President is constantly having to explain these things to the public. He's so much smarter than the rest of us that all this tiresome explaining is slowing him down.

Posted by: Cass at February 12, 2014 11:36 AM

"Obama should issue an executive order demanding that businesses stop keeping track of whether revenues exceed costs."

I'd love to, but I have a wife to please; Conservatives to audit; the debt ceiling to increase and Republicans to blame for it.
I'm swamped.
However, I'll throw you a bone for thinking like a good little serf should.

Posted by: DL Sly at February 12, 2014 02:08 PM

1. Keynes was intellectually weak, honest economists and *all* central bankers realized (sometimes in horror) that he was dead wrong . . . in his own lifetime.
2. I predict with confidence that there will be a genuine 'violent' revolt at the ballot box when 'ordinary folks' start to feel the economic pinch of stupid (IMO) green policies. When utility rates double in two years folks will pitch a fit, and it *will* be ugly, as the necessary corrections will take years to implement.

Best Regards,

Posted by: CAPT Mike at February 12, 2014 11:44 PM