The Google Pharm Case

by Llewellyn H. Rockwell, Jr.

Recently by Llewellyn H. Rockwell, Jr.: The EU Crackup

The American pharmaceutical system is a highly controlled apparatus for restricting access to much-needed drugs and violating the rights of those who want to purchase them. This has long been true.

Vast amounts of drugs that people should be permitted to purchase of their own free will are withheld from the market (of course, many others are outlawed). Instead, people who know what they need are forced first to fork over their money to a physician – who then gets overpaid by insurance – then part of the buck is passed to the over-trained checkout clerks at the pharmacy. We are all treated like babies in order to sustain and fund an industry filled with bamboozlers in white coats.

The Internet in its early days (perhaps 1998 to 2008) represented a wonderful alternative to this apparatus. Suppliers all over the world popped up to give us what we wanted, bypassing the whole cage of government regulations and private monopolists who rule them like prison wardens. You know what you need, so just click and buy it!

So the pharmaceutical industry solicited the help of government. Together, they worked to crack down on "counterfeit" medicines – meaning the real thing that bypasses patent restrictions and supplier monopolies. In their view, people must not be allowed to get prescription medications without doctor approval – else an entire fake industry could collapse. So they banded together and instituted a medieval guild system for the digital age.

Over the years, Google has accepted some advertising from some of these so-called rogue elements. In a free market, they would be perfectly legitimate advertisers. Google makes no guarantee of the exact nature of the goods and services of all those who choose to advertise on its network. It has some degree of interest in quality control, of course, but if the customers are buying and happy, what could be the problem?

Well, the medical cartel, of course, and it asked for the Justice Department to intervene. As of this writing, Google is assuming that it is going to be in hot water very soon. Its recent report to stockholders says that it has put half a billion dollars in escrow to deal with the Justice Department investigation. The presumption here is that Google is going to be held liable for permitting ads to run from market-based drug sellers.

There are so many ways that this is wrong that one hardly knows where to begin. But let’s start with pharmaceutical prices, which continue to go through the roof and which are driving forward increased pressure for socialistic forms of cost spreading. Using the Internet, there are tens of thousands of companies that could immediately begin distributing name-brand drugs and also derivative products at a fraction of the price imposed today.

Why not let them? More to the point, why should government resources be devoted to making sure that the price of prescription drugs remains as high as possible? If you thought that the regulators were truly concerned about consumer welfare (ha ha), this action alone should put that idea to rest.

What about the allegation that these are counterfeit drugs being sold? Well, it is seriously doubtful that if any consumer who is buying a prescription medicine from an online source is being defrauded; there is an understanding that the drug in question is most likely generic. Consumers have no problem with this, as the aisles of generics at the drug store suggest. What the government really means by counterfeit is that the generic drug is being introduced prior to the expiration of the patent that inflates prices as much as one hundred times.

We all have stories to share about such things. A cream that is $100 one day is $5 after the drug enters the free market. A nasal spray that is $200 is suddenly $10 after it becomes part of the market. And so on. The term counterfeit should be reserved for fraud; it doesn’t apply to goods that are brought to market before a government-imposed embargo expires.

The same is true of the notion of real and fake pharmacies. Drug dispensaries should be businesses like any other, subject to free entry and exit and governed by the principles of profit and loss. But just as with the medical profession itself, drug stores want to avoid being treated like commercial ventures. Instead, they want to be part of a tight cartel that rules who gets in and who stays out.

The only way to maintain a cartel is through government regulations, and this is what the pharmacy industry has long relied upon, much to the detriment of consumer well being. The attempt to crack down on free-market advertising of prescription drugs is all about protecting an industry from competition, and has nothing at all to do with protecting the consumer.

It is not a coincidence that so much Internet spam comes from companies that purport to be selling drugs that people do not necessarily want to get from their doctor. There are privacy concerns. There’s also a perfectly normal desire to avoid embarrassment. But the government will have none of it: you must confess to a doctor, you must look the drug-store clerk in the eye.

People commonly blame the markets for all this spam, but they really should have been fingering the government for having created the black and grey markets for these drugs in the first place! This is what creates the incentives to dump trillions of unsolicited emails on the world. The spammers knew that their product was valued but without normal markets, they resorted to globalized promotions.

In fact, this is why Congress made spam illegal. The anti-spam law had absolutely nothing to do with keeping your inbox clean. It was all about protecting the medical monopoly against competition.

Finally, there is the very serious matter of the presumed liability held by Google. Maybe there is a precedent somewhere for a magazine or newspaper being held responsible for the claims of its advertisers. But I’m quite sure that there has never been a case where the fees are anywhere near this range. $500 million? This is crazy, and a clear example of government’s looting of deep pockets.

The claim is that Google had disobeyed its own policies of making sure that every drug advertiser had passed through its own internal checks. But those checks were clearly instituted under government pressure, direct or indirect, so how it is an allegation against Google that it didn’t obey them across the board? This is nothing but harassment in order to preserve the privileges of a very powerful cartel.

People imagine that the U.S. has a free market in prescription medicine. This case is a very clear example of how and to what extent this is absolutely untrue. A free market permits anyone to advertise anything through any mutually agreed upon means. Google is being investigated and hounded and fined solely for doing business in a way that benefits society at large. What matters to government is that doing such business harms a favorite client of the state.

May 16, 2011

Llewellyn H. Rockwell, Jr. [send him mail], former editorial assistant to Ludwig von Mises and congressional chief of staff to Ron Paul, is founder and chairman of the Mises Institute, executor for the estate of Murray N. Rothbard, and editor of LewRockwell.com. See his books.

Copyright © 2011 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

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