Wednesday, February 1, 2017

As Compared to What?

By Don Boudreaux

Here’s a passage from this Wall Street Journal report on Trump’s meeting today with pharmaceutical-company executives:
The industry has been trying to present itself as a valuable part of the U.S. economy, employing tens of thousands in high-skilled positions and contributing important innovations….
That is, the pharmaceutical industry employs high-skilled people and, in doing so, increases their prospects of innovating in ways that improve human well-being.  This feature of the pharmaceutical industry is indeed a positive.  But what good economists understand and what most non-economists (including the economically ignorant Trump) don’t, is that the pharmaceutical industry would be an even more valuable part of the U.S. economy if it generated its important innovations with fewer high-skilled workers.  Indeed, if the industry were such that its current stream of breakthroughs in medications and medical devices could be kept going, but with the employment of only one unskilled worker, that would be close to ideal.
Put differently, while the innovations generated by the pharmaceutical industry are indeed important and unquestionably beneficial to humankind, the fact that many high-skilled people are employed to generate these innovations is a cost, not a benefit.  It’s a cost worth incurring.  But it’s a cost nevertheless.
If those same innovations could be generated with fewer high-skilled workers, humankind would be even better off.  We would have an undiminished flow of innovations from the pharmaceutical industry plus whatever innovations and products would be produced by the workers who would – but for the fact that they now work in the pharmaceutical industry – be working in other industries.
The above originally appeared at Cafe Hayek.


  1. Unfortunately machines don't vote.

  2. The point made with regard to pharma could also be made with respect to Intellectual Property (IP). Anti-IP fanatics like Stephan Kinsella like to claim that because computer programs (etc.) can be copied with near zero expense, that makes them worthless, unworthy of protection. In fact, it does the opposite: the world is made richer by a good that can be spread far and wide very cheaply than by one that costs more to distribute. This legitimizes protecting the creators of IP, not the opposite.