The Controlled Price Is Not Right

The theory and application of price control is as ancient as humankind’s written history. While we do not know how well the price controls prescribed in the Code of Hammurabi worked for ancient Mesopotamian society, we do have the annals of the Greeks that record the first, detrimental effects of price controls and then the subsequent failures of price control throughout all human empires, governments, and history. Even with all the history of failed price controls, Colorado Senate Bill 21-175 was signed in 2021, and the Prescription Drug Affordability Board (PDAB) was created with specific guard rails. These guard rails allowed Coloradans to see whether a government bureaucracy could successfully do what no other society has ever achieved. These two guard rails were purposely put in place to prove a concept, which 2 years later remains unproven. Presently the Colorado legislature is proposing to remove those two guard rails in House Bill 23-1225, which is dangerous not only in principle but also in practice and could have massive negative economic repercussions to all Coloradans.

America is not the only republic to face a complex regulatory situation and try to enact price control to get out of it. In 388 B. C., Athenian rulers had such a complex set of regulations on agriculture that grain prices started to run out of control. So, they turned to fixing grain prices. Despite a penalty of death for evading these price controls, many Athenian grain traders either started hoarding grain or turned to the black market. Time and time again, history showed that price controls made an inflationary or tragic event much worse: the Bengal Famine of 1770, The French Revolution’s Law of General Maximum, and even Nixon’s gas and other price controls. Nixon was not even the first in America to try to defy economics; the Continental Army nearly perished due to price controls enacted by the fledgling American society. The Pennsylvania state legislature tried responding to skyrocketing commodity prices by controlling the price of domestic commodities necessary and essential for the use of the army. While this was justified as an effort to reduce the burden of war, it led to farmers refusing to sell their goods at the prescribed prices, a quartermaster unwilling to pay anything more, and a brutal winter at Valley Forge that very nearly destroyed the upstart American Idea.

But like many theories and issues, history has a way of echoing and Colorado’s PDAB is trying to accomplish what no other government has. And after nearly 2 years, and $1.6 million in taxpayer expenses, the PDAB has missed their March 31^st deadline for announcing the first set of drugs they will consider for price controls and have now pushed the deadline back to June. Which is why the writers of the original bill can at least be said to have had some degree of prudence with the guardrails on PDAB: they had a limited deployment of the powers of the PDAB and it had a prove-it sunset of 5 years. Stakeholders specifically requested the sunset provision to ensure a check on the bureaucracy and to hold PDAB accountable. If the PDAB is unable to bring down the price of drugs or reduce the out-of-pocket expense of the limited drugs in 5 years, why should we trust them with more time, more money, and more drugs? We see this principle in action in the private sector all the time. When a company is trying a new idea or product, they typically do not jump all in right away, instead they test the waters first to see if the new idea is worth the investment. Even the greatest skeptic of price controls can at least appreciate the ability for us to prove once again whether this idea will work or not.

But this idea is not working for Coloradans and now our legislature is trying to fix the lack of progress by doubling down on a bad idea. They are increasing the limit of 12 drugs to all drugs that meet the pricing criteria and doubling the sunset provision from 5 years to 10 years. Common sense would dictate that we, at the very least, wait another year or two to see if PDAB can fulfill their mission before we give them more authority? Why are we removing their training wheels before they have even shown that they can ride a bike? This is a dangerous proposition and furthermore, it is not a wise or prudent way to govern. The legislature should be looking not at the intention of a bill, but its actual effectiveness. I, like many Coloradans (and let’s face it, all Americans), see the effect of rising prescription costs. But is the best way to control those costs enact a principle that has not worked in 4,000 years? We will be stuck with another government entity who is audacious enough to think it will defy all recorded history.

When the price is not right, to control it has also proven not to be right as well. There is no doubt that lowering prescription drug prices is not an easy fix, especially considering pharmaceuticals is one of the most regulated industries from the Federal government down. A complex issue is not going to be solved by a “simple” idea such as price fixing. The increasing costs of medicine is going to require the cooperation and ingenuity of more than just state legislatures to solve, especially ones demanding more power and control with no proven success. House Bill 23-1225 needs to be tabled unless the PDAB can show it is not hurting the very people it was intended to help. Again, we must be resolute in principle and this begs the question: does control really help the American people or does it hurt them?