Day: October 15, 2023

By Jon Miltimore 

During a 2021 earnings call with stockholders, Pfizer Chief Financial Officer Frank D’Amelio discussed how the company was using “pandemic pricing” to charge $19.50 per COVID-19 vaccine dose, a product it expected to make $15 billion on in 2021. 

“[There’s] significant opportunity for those margins to improve once we get beyond the pandemic environment that we’re in,” D’Amelio said.

He wasn’t joking. 

When the Associated Press rolled out a story a couple weeks ago announcing that Americans can now receive an updated COVID shot, buried in the twelfth paragraph was this little nugget.

“The list price of a dose of each shot is $120 to $130, according to the manufacturers,” the AP reported. 

Pfizer and its German partner BioNTech set list prices at the bottom end of that; Moderna’s price was a bit higher.

The quadrupling in pricing from two years ago has received little media attention, but some have noticed and are not happy. Kathryn Edwards, a professor of pediatrics and infectious diseases at the Vanderbilt University School of Medicine, summed up her thoughts on the price increase in two words: “pretty awful.”

The Washington Post reports that some clinics are charging up to $150 a shot, and some patients are paying out of pocket (even though under federal law COVID vaccines are required to be covered by both public and private insurers).

“That’s ridiculous,” Jenna Vallejo, chief operating officer at a pediatric hospital in Maryland told the paper.

A spokesperson for Pfizer announced the pricing is “consistent with the value delivered.” 

Pfizer’s Pricing Problem

People are unhappy about what Pfizer is charging, but it bears asking: What should Pfizer be charging for its vaccine?  

Warren Buffett has famously said, “Price is what you pay; value is what you get.”

The quote is helpful because it’s a reminder that price and value are not the same thing. Value is subjective. It’s not determined by how much labor goes into a product, or how many resources. 

Prices work differently. In a free market, buyers and sellers freely make decisions on a daily basis that help determine the prices of everything from bacon and peanut butter to stocks and iPhones. 

Vaccines work a bit differently, of course. 

For starters, as mentioned, most consumers will not have to pay anything for the vaccine. In most cases, a third-party — public or private insurance — will be picking up the tab. In other cases, governments purchase vaccines directly from manufacturers at a negotiated price (more on that in a minute).

All of this means that Pfizer has a lot of leeway in the price it chooses to charge for its vaccine — especially when one considers almost all rival competitors have been sidelined by the Food and Drug Administration.

But there’s more to the story.

No More Coercion

Pfizer’s financial reporting shows that in 2021 revenue was $81.3 billion, roughly double its revenue in 2020. In 2022, total revenues surged even higher, surpassing $100 billion. In 2022, the vaccine accounted for about $38 billion (billion with a B) of Pfizer’s revenue, despite its relatively low price.

Things have changed since then. For much of 2021 and 2022, Pfizer was in the catbird seat. Governments were coercing people to get vaccinated. If you weren’t vaccinated, you could get fired. Or kicked out of school. Or denied entry to a restaurant or concert. 

The use of government force (and threats of force) artificially raised the demand of Pfizer’s product, which juiced profits. But those days are mostly over. Politicians are no longer talking about making Americans get vaccinated, either because the policy proved too polarizing and unpopular or because public officials have finally conceded that the vaccines don’t prevent COVID infection.

Whatever the case, the lack of coercion will mean a much lower demand for COVID vaccines. Indeed, a recent CNN survey found that just 1 in 4 US adults say they’ll definitely be getting the updated vaccine. 

Pfizer is no doubt aware of this weakened demand, and they are raising prices because of it. 

A Sort of Syndicalist or ‘Corporative’ Organization

The truth is, we don’t have a genuine price of the vaccines because from the beginning they’ve operated in a government-driven market. The government decided who got to play. It was involved in the pricing and distribution (which is no doubt why hundreds of millions of vaccines were simply wasted). And it coerced people to take them and shielded manufacturers from liability if their product harmed someone. 

Ironically, some of the same people who created and defended this system are now angry about its dysfunctional pricing, noting that Pfizer and Moderna are now charging the federal government as much as $85 a dose, roughly triple what they were last year.

“Europeans are now negotiating with Moderna for a new vaccine, and their price is going to be substantially less in Europe than it is in the United States,” Senator Bernie Sanders said in a recent interview. “So that’s exactly the issue. We’re trying to get a hold of reasonable pricing.”

Sanders and others are saying the US might be getting ripped off by pharmaceutical companies, but it’s hardly Pfizer’s fault the US appears to be lousy at negotiating prices (the US has been paying more for vaccines than European countries for years). 

Anyone familiar with Milton Friedman’s observation on the four ways of spending moneywill hardly find it surprising that the US government isn’t flinching over manufacturers tripling the price of vaccines (even though European countries are receiving a discounted rate). 

The truth is, there’s very little incentive for the government to keep vaccine prices low, and there may very well be unseen incentives to increase them. There’s a name for this. The Russian word for it is semibankirshchina. The Koreans call it chaebol. To the Japanese it is keiretsu, the New York Times columnist William Safire noted a quarter-century ago. And the Chinese call it guanxi.

Americans know it as crony capitalism, a system that involves big business and government working together to serve their own interests, which are not necessarily the same as consumers or taxpayers. 

Crony capitalism is neither socialist or capitalist; and though he didn’t use the word crony capitalism (which first appeared in 1981, according to Saffire), the economist F.A. Hayek described something like it in The Road to Serfdom, calling it “a state of affairs which can satisfy neither planners nor liberals: a sort of syndicalist or ‘corporative’ organization of industry, in which competition is more or less suppressed but planning is left in the hands of the independent monopolies of the separate industries.”

That’s a pretty good description of crony capitalism—or at least one of its versions—and it helps explain why it’s hard to make sense of the vaccine’s new price tag. 

It’s one more reminder of an essential lesson of basic economics: Free markets naturally result in the efficient allocation of scarce resources and lower consumer prices over time. Government-managed systems tend to produce just the opposite.

About the author: Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune.

Source: This article was published by AIER

Although after the profligate fiscal policies of the Trump administration, it is difficult to take seriously that substantial spending cuts were the reason that Trump and the MAGA Republicans were so eager to make the United States default on its debt and trigger a government shutdown by attempting to block legislation to avoid these bad outcomes. After all, Trump was famous for boasting that “there’s nothing like doing things with other people’s money,” and then did it by presiding over a $7.8 trillion dollar rise in the national debt. During Trump’s four years in office, the MAGA crowd regularly raised the debt ceiling and kept the deficit-ridden federal government open. Yet, suddenly, when a Democrat won the 2020 election and became president, MAGA Republicans became deficit and debt hawks.

Yet, MAGA Republicans’ hypocritical rhetoric aside, the federal budget does need to be significantly cut to help reduce the nation’s colossal budget deficits and debt. Of course, such reductions are politically difficult because both parties have powerful vested interests that would squawk loudly if that were proposed. Another problem is that given the giant entitlement programs—Social Security, Medicare, Medicaid, most Veterans’ administration programs, unemployment compensation, and agricultural price supports—about two-thirds of federal spending is on autopilot, paying benefits to anyone who qualifies for them. About eight percent of the budget is the growing interest payments on the gargantuan and rising $33 trillion in national debt. About half of the remaining quarter of the budget—called “discretionary spending” that Congress appropriates yearly—is ever-ballooning defense spending. The other approximate half of that quarter is domestic discretionary spending—think of federal education, transportation, and infrastructure programs, etc.

When bank robber Willy Sutton was asked why he robbed banks, he said, “that’s where the money is.” In the federal government, the entitlement programs are where the pot of gold is. Thus, no serious budget-cutting plan should leave out entitlement reform, but only former Vice President Mike Pence has trumpeted it so far in the Republican primaries. In fact, former President Donald Trump, the overwhelming Republican frontrunner, has always promised he wouldn’t cut Social Security and Medicare. Because of powerful interest group support, politicians of both parties have learned over time that pledging to cut entitlements is a political loser. Pence, riding low in the polls, has only done so in a desperate attempt to distinguish himself from the large pack of candidates trying to challenge Trump for the nomination.

Powerful interest groups also vociferously denounce cuts in other programs. For example, the federal security bureaucracies, defense industries, and media—supported by politicians of both parties—usually play the “patriotism” card to defend, spending almost $900 billion per year to police the informal U.S. global empire. Yet equating support for an offensively oriented military designed to project power around the world would not comport well with the nations’ founders’ conception of patriotism. The founders’ generation, and all American generations up until the post-Korean War Cold War period, were highly suspicious of large standing armies in peacetime and getting unnecessarily involved in faraway overseas quarrels. The founders correctly realized that both led to threats to liberty at home through the creation of overweening government power at home.

So, public support in America for keeping such large forces on hand permanently and using them to police the world is a fairly recent phenomenon. Currently, the American military budget is bigger than the next ten highest defense spending countries combined, including China, Russia, and many rich and robust U.S. allies. Despite the Cold War having ended long ago, the United States still has 800 military bases in seventy countries, many designed to fulfill formal and informal U.S. commitments to defend a plethora of allies and friendly nations.

Frederick the Great, one of the best military minds in history, coined a phrase that best sums up a fundamental military principle: “To defend everything is to defend nothing.” Thus, adding countries under the U.S. defense umbrella (for example, adding Finland and maybe Sweden to NATO) or enhancing existing alliances (for example, President Joe Biden’s verbal pledge to defend Taiwan if attacked) merely adds to the already grossly overextended and therefore dangerous, U.S. security posture. Instead, given the excellent geographical security that the United States possesses, the U.S. government should choose more carefully what it critically needs to help defend, leaving the security of the rest to its many wealthy allies and friends worldwide. This more restrained American security posture would allow U.S. forces, bases, and defense budget to be cut, thus reducing the economy-dragging budget deficits and burgeoning debt. A healthy economy undergirds all forms of security through hard and soft power.

This article was also published in The National Interest 

“FTC Says Online Retailer Wielded Its Power Illegally to Harm Competitors,” reads a front-page Wall Street Journal article from Sept. 27.

According to its website, the Federal Trade Commission is the government agency whose mission is “protecting the public from deceptive or unfair business practices and from unfair methods of competition.”

FTC Chair Lina Kahn evidently conflates protecting competitors with promoting competition. But her aggressive antitrust agenda turns a half-century of accepted antitrust doctrine on its head. Antitrust law’s sole purpose is—or should be—ferreting out and sanctioning business practices that reduce consumers’ welfare by raising product prices or degrading the quality of goods and services offered for purchase.

Kahn was confirmed as FTC chair because of her implacable opposition to “Big Tech.” That’s the real political story. She now oversees two antitrust cases targeting two of the globe’s three biggest online platforms: Amazon and Meta, Facebook’s parent company. (The Department of Justice is going after a third tech giant, Google.)

All three are significant forces in today’s digital world. “Google it” is common parlance for online searches. According to The Wall Street Journal, Amazon accounts for 38% of all U.S. online retail sales, enjoys an 82% share of the U.S. e-book market, is “the world’s largest cloud-computing company and … third-largest (U.S.) digital advertiser by revenue.” Facebook is a top social media platform, though TikTok is more popular among the young.

The FTC portrays Amazon as a monopoly by narrowing the relevant market to “online superstores.” That definition conveniently limits Amazon’s competitors to Walmart and Target. But doing so willfully ignores America’s 1 million-plus brick-and-mortar retailers, other large online sellers—eBay, Kroger, Etsy, Best Buy, Wayfair, Zara, Chewy—and thousands of mom-and-pop specialty shops that compete with Amazon in niche markets every day.

If those rivals were included—and how could they not be?—Amazon’s share of total retail sales nationwide would be no more than 6%.

Narrow market definitions are staples of antitrust “hawks.” The trick allows them to create ersatz market dominance out of whole cloth. Aggrieved competitors can then sue their successful rivals for violating laws based on theories only loosely related to the realities of market competition.

A “monopolist,” in economics textbooks, commands 100% of a properly defined market for a good or service that, in the eyes of prospective consumers, has no good substitutes. Think of your local public water utility, electric company or natural gas provider.

Neither Amazon, Google nor Facebook are anywhere close to being monopolists by that definition. They are big, but they face competition from myriad smaller rivals that will eagerly expand if they fail to innovate or serve their customers well.

Kahn once thought Amazon’s prices were “too low.” Blind to competition beyond the “online superstores” market, she now argues that they are “too high.”

What she means, of course, is that Amazon is “too big.” But size is not illegal under any reasonable consumer welfare standard. (Full disclosure: I have been an Amazon Prime member for years.)

As economist Joseph Schumpeter prophetically explained many decades ago, if “creative destruction” is allowed to operate, the market leaders that keep Lina Kahn up at night will be displaced by new market leaders. Blockbuster was once a near-monopoly, but cable and streaming wiped out its market power.

Commercial competition is not a fragile flower that requires cultivation under ham-fisted antitrust law crusaders.

Online commerce has exploded in recent years for many good reasons (pandemic lockdowns, store closings due to urban crime, convenience). And yes, monopolies exist and persist—but most are government-created: the DMV, Postal Service (first-class mail), and poorly performing big-city public schools that trap low-income children in unsafe environments.

Kahn could well take a page from one of her predecessors as FTC chair, James C. Miller III, for whom I worked during President Ronald Reagan’s first term. Attacking public-sector monopolies would help consumers—and taxpayers—far more than mounting populist, but inadequately considered, antitrust cases against the world’s most successful private businesses. They may be big, but that doesn’t make them bad.

This article was also published in MSN Money

By Abhishek Kumar Singh

In the midst of global discourse advocating the non-utilisation of nuclear weapons, North Korean leader Kim Jong Un recently called for a significant expansion in the production of nuclear armaments during a two-day parliamentary session in Pyongyang. In addition, he articulated a desire for his nation to assume a more prominent role within a coalition of countries challenging the United States (US) in what he characterises as a “new Cold War.”

Furthermore, according to the South Korean Ministry of Defence, North Korea may be contemplating a series of tactical and strategic provocations, including the possibility of conducting a nuclear test. This potential action is viewed as an attempt to divert attention away from the ongoing food scarcity crisis afflicting the country. Despite Pyongyang’s severe food shortages, human rights violations, economic challenges, and the imposition of various international sanctions, North Korea’s spy networks and the continuous development of nuclear weaponry present an intricate conundrum.

North Korea’s ability to maintain and advance its nuclear armament capabilities is a remarkable testament to the efficacy of its deceptive strategies. The world has repeatedly been unable to prevent North Korea’s nuclear ambitions at numerous occasions, highlighting the success of Pyongyang’s deception tactics aimed at attaining nuclear armament.

Vipin Narang’s—a political science professor at Massachusetts Institute of Technology—classification of four nuclear armament strategies, namely hedging, sprinting, hiding, and sheltered pursuit, holds a prominent position in interpreting the complexities of the nuclear armament strategy. Within this theoretical framework, this analysis applies Narang’s theory to North Korea, closely examining the nation’s efforts in developing and strengthening its nuclear weapons capabilities at a strategic level. By utilising Narang’s framework, this study aims to provide valuable insights into the intricate dynamics surrounding Pyongyang’s nuclear programme within the realm of international relations. 

Narang’s theory of nuclear armament 

According to Narang’s categorisation, ‘hedging’ refers to when a state develops nuclear weapon capabilities but delays production. It keeps its options open to respond to evolving security conditions. For example, Japan possesses advanced nuclear technology but refrains from actual weapons production. It could rapidly develop weapons if security conditions deteriorate.

“Sprinting” refers to the rapid development of nuclear capabilities in response to security threats. This can be witnessed in Pakistan’s sprint to acquire nuclear weapons in the 1980s in response to regional security challenges. “Hiding” is a covert strategy where a state secretly develops or conceals nuclear weapons to evade international scrutiny, sanctions, or pre-emptive action by other nations, aiming to surprise potential adversaries with its nuclear capability. Iran’s pre-JCPOA nuclear programme and Israel’s nuclear opacity policy both exemplify the hiding strategy.

Lastly, “Sheltered Pursuit” is a strategy where a state, often an ally of a nuclear-armed nation, relies on its ally’s nuclear protection to deter adversaries without developing its own nuclear weapons. European NATO members like Germany and Italy employ sheltered pursuit, depending on the US nuclear umbrella within the alliance’s security framework. 

However, Narang’s analysis primarily focuses on the strategies nations employ to acquire nuclear weapons, but it does not provide a comprehensive understanding of the entire course of a nation’s nuclear armament, leaving North Korea’s nuclear strategy partially unexplained. 

Deception in nuclear armament 

While other elements, such as inherent human limitations and unexpected information confusion, may contribute to misperception, deception serves as a potent and influential means to achieve this end. Deception’s ultimate purpose goes beyond mere misperception; it aims to further national goals and strategies by manipulating perceptions and surprising its rivals. Thereby, North Korea’s ultimate goal of forcibly unifying with South Korea, including through nuclear means—a stance unacceptable to the world—compelled the former to resort to deception.

Therefore, during the nuclear development phase, North Korea employed various tactics to create the impression that it might relinquish its nuclear programme if the US abandoned its hostile policies. This demand served as a calculated deception aimed at buying time to continue with weapon development. North Korea further masked its true intentions by claiming interest in peaceful nuclear energy usage while evading efforts to generate electricity from the nuclear reactor. Thereafter, following the acquisition of nuclear weapons, North Korea suggested the prospect of dismantling these weapons in exchange for economic gains.

North Korea’s tactical evolution and strategic manoeuvres

North Korea’s nuclear strategy has been marked by a tactical evolution driven by deceptive ploys and strategic manoeuvres. Primarily, the overarching objective of North Korean deception was to strategically extend the time available for the production of additional nuclear weapons and the enhancement of missile capabilities to a level that would dissuade the US from considering military actions against North Korea.

By achieving the capability to conduct a retaliatory nuclear strike on one or more US cities, North Korea sought to render itself immune to potential attacks. Therefore, Pyongyang’s deception operations proved instrumental in the accomplishment of its strategic nuclear buildup. However, Pyongyang utilised diverse nuclear strategies at different junctures to reach its goal.

In its early nuclear programme stages, North Korea employed a “hiding strategy,” concealing its efforts from the international community. Deceptive agreements, like the 1994 “Agreed Framework,” followed by the failure of six-party talks, allowed North Korea to secretly advance its nuclear programme, culminating in the development of nuclear weapons by 2013. Alongside, China played a crucial role in North Korea’s strategic evolution by facilitating a “sheltered pursuit.” Beijing’s diplomatic support, covert assistance, and tolerance of North Korea’s activities shielded the regime from international pressure, providing a lifeline for its nuclear ambitions.

Subsequently, North Korea shifted to a “sprinting strategy,” while engaging in deceptive denuclearisation talks with the US. This tactic aimed to deter immediate military action while buying time for further nuclear expansion. By participating in negotiations, North Korea diverted attention and indicated a willingness to denuclearise while bolstering its nuclear capabilities on the side. These diverse strategies contributed to its advancement toward its nuclear objectives, making it an outlier in Narang’s theoretical framework.

Noteworthy, Pyongyang’s nuclear strategy operates within a complex global context and carries broader implications for global security. Its nuclear pursuits exacerbated tensions, defying intelligence agencies, and consistent missile testing challenged the non-proliferation norms, made the Korean Peninsula a volatile region, and destabilised Northeast Asia. Moreover, the animosity between Pyongyang and Washington has allowed the danger to spill over to an international level.

Policy implications

Pyongyang’s threat underscores the necessity of international cooperation and diplomacy to address nuclear proliferation challenges, as this comprehensive overview reveals the intricate connections between North Korea’s actions and the global geopolitical landscape.

Considering that Pyongyang’s nuclear capabilities pose significant regional and global security threats, Washington and its allies should consider exploring the gradual implementation of nuclear sharing arrangements similar to those seen in Europe, but in Northeast Asia. The Washington Declaration (April 2023), and Camp David Summit (August 2023) represent a positive step in this direction, but further measures could involve the establishment of a nuclear planning group specific to the region to address nuclear issues. In more severe scenarios, the US could consider relocating some nuclear missiles to Guam, or South Korea and sharing them with its allies, as is currently done in Europe.

Furthermore, it is worth noting that Beijing’s crucial assistance played a pivotal role in Pyongyang’s nuclear goal, and even as a nuclear-powered state, it still remains heavily reliant on Beijing. Thus, an incremental approach could exert pressure on China and Russia to collaborate in persuading North Korea to denuclearise, as both nations would be averse to the emergence of another nuclear-sharing system in Northeast Asia.

Additionally, South Korea should establish itself as a dependable partner by actively engaging with other Indo-Pacific countries through both multilateral and bilateral agreements. By participating in the Quad, South Korea could expand its defence capabilities while simultaneously strengthening its intelligence cooperation with NATO and the US. These concerted efforts could contribute to regional stability and potentially foster a conducive environment for denuclearisation talks with North Korea. Even if denuclearisation fails to yield success, these initiatives will provide security to South Korea and neutralise the threat on the Korean Peninsula.

About the author: Abhishek Kumar Singh is a PhD Candidate in IR at Kookmin University, Seoul on a GKS scholarship

Source: This article was published by the Observer Research Foundation