Today, Brian Miller testifies before the US Senate on how increased competition in prescription drug markets can make medicines more affordable; John Cochrane analyzes climate policy through the lens of measurable costs and benefits; and David Henderson explains why rent controls are not the right policy approach to make housing more affordable.
Healthcare Policy
Visiting Fellow Brian J. Miller testified today before the Senate Committee on Health, Education, Labor and Pensions on how competition in the pharmaceutical drug market can lower prices. “Policy has multiple tools available besides payment to address drug affordability,” Miller testified, noting that the structure of the regulatory environment “shapes competition.” The medical doctor and scholar says that streamlining the Food and Drug Administration’s “evidentiary requirements” offers one promising path to improved drug affordability. Additionally, Miller says, “Policymakers can spur or even require FDA to update drug review and push for modernized evidence generation, lowering entry costs for branded drugs and simultaneously expanding diversity in clinical trials.” At Hoover, Miller is part of a team of scholars investigating policy changes that can reduce the costs and increase the quality of healthcare in the United States. Read Miller’s full written testimony here.
Freedom Frequency
In this week’s Grumpy Economist Weekly Rant, Senior Fellow John H. Cochrane examines whether current climate policy is delivering meaningful benefits at reasonable cost. He discusses the Trump administration’s move to withdraw from the UN climate framework underlying the Paris Accords, the reversal of the EPA’s carbon dioxide endangerment finding, and the broader legal and economic questions surrounding federal climate regulation. Cochrane also considers how energy policy operates in practice. Discussing renewed momentum behind nuclear power as well as California’s refinery shutdowns, imported gasoline, and Jones Act shipping rules, Cochrane emphasizes that energy policies should be evaluated by their ability to produce measurable gains proportionate to their economic costs. Watch or read more here.
Answering Challenges to Advanced Economies
In a new episode of Hoover’s short video series Policy Stories, Research Fellow David R. Henderson challenges the economic arguments in favor of rent controls. He shows that while rent control is presented as a way to make housing more affordable, in practice it does the opposite. By reducing rental unit supply, discouraging maintenance, and weakening incentives for new construction, rent control creates a housing market with fewer available units, worse housing quality, and higher barriers to entry, Henderson says. The economics professor argues that rent control persists because its benefits are concentrated among those already inside the system, while the policy’s costs fall on those still trying to get in. Watch here.
Confronting and Competing with China
Visiting Fellow Matthew Pottinger joined The David Frum Show to discuss the current state of the war in Iran and the current US blockade of the Strait of Hormuz. Frum and Pottinger talk about the recent failed negotiations between the US and Iran in Pakistan and what could happen next. They also discuss how the Iran war is viewed in China and how it has been a financial gain for Russia. Pottinger emphasizes how the “democratization of warfare,” wherein advanced technologies and military capabilities are available to more state and nonstate actors, has shaped this conflict and to some extent has constrained the US military as it seeks to protect forces deployed in the region. “The nature of warfare never changes,” Pottinger, a retired US Marine, says, “but the character of warfare—how wars are fought—changes all the time. And we’re now having a reckoning in many ways.” Watch here.
Economics Research
In a new Harvard Business School working paper, Senior Fellow Amit Seru and coauthors “use novel data on the composition and cost of payments across US merchants to quantify consumer redistribution in the payment system.” The authors examine how merchants’ raising prices to cover payment network interchange fees impacts users of different payment methods, such as debit and credit cards, at differential rates. They find that “consumer sorting—where consumers who use different payment methods shop at different merchants—limits the exposure of cash and debit users to the effects of high interchange fees.” Additionally, “interchange fees vary across merchants; where users of different payment methods overlap, such as at large grocery stores, fees are lower due to sector discounts and private negotiations.” The authors conclude that “interchange fees transfer approximately $30 billion every year from cash and debit users to credit card users,” in what amounts to a “regressive transfer.” Read more here.
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