Coyote Blog

Lynne Kiesling is on fire, with a series of posts on gasoline pricing over at the Knowledge Problem.  She has posts here and here showing how gasoline purchases have fallen steadily as a percentage of household income, and she also has a nice summary post about the recent runup in prices here.

She is now headed up to the Boundary Waters - hopefully she is camping the Boundary Waters here.

The other day, I posted on a NY Times editorial that attempted to make the point that a .

This aggressively ridiculous position is none-the-less repeated by statists every day in many contexts.  Today I will focus on a post by David Sirota on the Huffington Blog.  Its premise is that government ownership of commercial assets is more conducive to freedom that private ownership.  I could probably have found a more serious writer to Fisk, but I am bored this afternoon and needed some fun.  Besides, its fun to see someone actively channeling some of the minor characters in Atlas Shrugged.

First, to be fair, I have to start with a strong point of agreement with Mr. Sirota:  Both of us are frustrated with the corporate welfare, subsidies, eminent domain land grabs, new stadiums, and incumbent protection laws handed by all levels of government to various corporations.  Mr. Sirota cites the stadium example in particular, which has always been a pet peeve of mine as well:

Usually, government is in the business of handing over huge amounts of
our taxpayer money to corporations, so that the corporations can just
take all the profits, and charge whatever they want to the customers.
That's been the backbone of the recent spate of high-profile stadium
deals, whereby city and state governments just fork over cash to private pro sports teams,
while getting no share of the massive profits in return, and letting
those teams charge higher and higher ticket prices to the fans whose
tax dollars are supporting them.

I feel fairly well protected on the price angle by the fact that I can just choose to not go to the games, but he is right that the government is handing over stadium money with little to show for it in return.

But this is where he and I diverge.  My answer is to stop crony capitalism, and to stop using government money and regulatory authority to support favored businesses.  Mr. Sirota goes the other direction, which one might call "in for a penny, in for a pound", of having the government continue investing in businesses but to do so on the government's own account.

ordinary Americans are realizing that there's an alternative path,
whereby community ownership of certain economic institutions and
businesses are a pretty good deal. Instead of allowing Corporate
America to reap the windfalls of everything, more and more communities
are trying to get a piece of the action "“ all while making sure the
public is adequately served, and not abused.

The highest profile example of this is in municipal broadband, where city governments are developing taxpayer-owned high speed Internet networks.
Instead of allowing Verizon or other corporations to control Internet
access and rake in all the profits from it, these communities are
making Internet access a public utility and sharing in the profits.
These communities can make some money at it, while doing the public a
service by keeping rates low.

I will accept his chosen example of broadband networks. I will also, for today, give the author a break and not challenge the bizarre notion that replacing a private company like Verizon who has a 5-10% profit margin with an inefficient government bureaucracy can yield substantial cost savings for customers AND fat profits for the municipal government.  In fact, I will leave the obvious efficiency arguments behind entirely and only discuss the morality, the right and wrong involved in his proposition.

Ownership and Capital Investment
Corporations like Verizon are owned by communities of millions of ordinary people through a mechanism we call "stocks".  Even the few large shareholders of Verizon tend to be investment funds, which are really just vehicles for aggregating ownership of many many ordinary people via mutual funds and/or the pension obligations they back.  Owners of Verizon provide capital to the company through their stock investment in an uncoreced transaction and of their own free will.  Their ownership is evidenced by actual paper shares, and is portable, such that they retain ownership anywhere they live, even overseas.  Investors at any time, if they don't like the company's performance or prospects, are able to cash out at the market price, and companies routinely return a portion of their surplus to them in the form of dividends.  Investors elect a board of directors to steward their investment in the company, and can throw these directors out any year with a 51% vote.  The company they have invested in must provide them clear reports quarterly using GAAP accounting rules about how their investment is fairing.

Contrast this to a municipal-owned broadband network.  In some sense, all members of the municipality have an ownership interest in the network, but they receive no documented evidence or guarantee of this ownership.  Local citizens are required by law to contribute capital to the enterprise via their taxes.  Their investment is mandated by the state, is not optional, and non-investment (via non-payment of taxes) is met with a prison sentence.  Once their money is invested, they may not sell their interest or in any way recover their investment.  History has shown that surpluses in municipal owned business seldom exist, but when they do, they are never returned to the citizens, but are spent in other government functions at the whim of the local authorities.  If the citizen moves, he loses any benefit of his investment.  Municipal authorities seldom produce financial statements for these enterprises, and, when they do, they would never pass GAAP muster.  Since the author mentions Enron, I will say that Enron had cleaner financial statements than most government entities.

The author clearly prefers the latter.  Does someone who chooses the latter over the former really care about freedom and individual rights?

Competition and Evolution

A private company, particularly in an industry like broadband with rapid technology change, is constantly subject to getting beaten by a competitor with better technology or a lower cost position.  In the absence of government intervention, the private company has to constantly match competitive technology changes and cost improvements, or die.  Its interesting that the author would choose broadband, because the corpses of literally hundreds of failed broadband companies litter the American landscape.  Broadband has historically been a brutal business, with most companies failing to repay their investment in their infrastructure.  I will confess that many of the major communications players have been slow to move in this area, but in large part it has been government incumbent protection, not market incentives, that have slowed progress.  Wireless broadband providers and equipment producers have to move rapidly -- they have already migrated from proprietary designs to A to B to G and now to N in just five years or so.  A private company without government protection in this environment is faced with two choices:  constantly upgrade, or die.

Now, lets look at municipally-owned broadband company.  Like the private company, it will have to make a large start-up investment to get the infrastructure in place.  Also like the private company, repaying this investment (and thereby avoiding hitting their taxpayers with new charges each month for operations, ala Amtrak) will require putting a lot of volume on the network.  Finally, also like the private company, it will be facing new technologies and new potential competitors almost before the network is complete.  So what does it do?  It could begin to reinvest in the infrastructure, earning the ire of local citizens because it goes back for yet more taxes for the development.  It could cut prices and drive for market share, lengthening the time before it breaks even and eliminates the tax subsidy it will require. 

Or, it has a third option that the private company does not have:  It can use its government authority to block new entrants.  I will tell you right now - the government will use this third option every single time.  Take another large government network business: The Post Office.  The USPS tried like hell to get the government to block Fedex, and almost succeeded.  The government continues to block competition to the USPS for first class local mail.  Heck, the USPS has tried at various times to argue that it should have authority over email and the Internet.  The government blocks new cigarette manufacturers to protect the settlement money it gets from the old-line tobacco companies and it blocks usage of Love Field in Dallas to protect D/FW airport.  Bureaucracies never, ever let themeselves die, and there is no way a municipal broadband business will ever let itself be killed by a competitor - that competitor will be blocked, even if that likely means that local broadband consumers have to stick with higher costs and outdated technologies.

Gee, that sounds great, huh?

Pricing
My sense is that this is what gets the socialists and community ownership guys excited.  You can see from the quotes above, the author sees the world of private enterprise as this enormous price gouging domain, with no accountability on prices.  Though he does not say it explicitly, I am sure if asked he would say that private corporations have no accountability to the public (ie consumers)on pricing, whereas the local municipal government would.  This pricing issue is I think at the heart of his support for public over private ownership:

People know corporations right now have far too much power
and far too much leeway to rip off ordinary citizens - but there is a
feeling that that's "just a fact of life." The Community Ownership
movement shows it doesn't have to be a fact of life, and that there is
an alternative

The obvious response is that private companies have a tremendous accountability on price, from two directions.  First, consumers, if prices are too high, can choose not to buy.  Second, if prices remain "too high" for long, then competitors emerge to undercut them.  Like most socialists or "progressives", the author doesn't understand or trust these mechanisms - he prefers top down rather than bottom-up accountability.

In this sense, he prefers the comfort of the municipal business where elected officials that the consumer votes for set prices, and trusts these elections to provide more accountability than the market  (how ). Even forgetting that government inefficiency will make price savings impossible in such a thin margin business, how can anyone look at Congress or this administration and believe that electoral accountability is stronger than the market.  Do you really feel that you can do more about to affect government set rates like local sales tax rates than you can in response to say rising cell phone rates?  If I don't like my cell phone rate, I can switch plans, switch companies, or switch to other technologies (land lines, VOIP, etc).  If I don't like the sales tax rate, the best I can do is move to New Hampshire.

Conclusion

Wow, this piece really went on for a long time, and certainly far longer than Mr. Sirota's article deserved.  As a final comment on the author's grasp of reality, note this quote, where he refers to:

the out-of-touch confines of the Beltway where free market extremism reigns supreme

LOL.  I would love to find even a little bit of free market extremism inside the Beltway.  And if by free-market extremism he means crony capitalism of the sort I described at the top of the post, well, he should be more careful with his word choice. 

For too long, our side has rolled over and died when it comes to
questions about how to manage the free market so that it works for
ordinary people.

Here is a hint - if you want to participate in the profits of the free market just like the fat cats, try this.

An email from a friend recently got me thinking about why, despite rising prices and tight worldwide demand, we aren't seeing gas station lines this year, like we did during oil shocks of the early and late 70's.  I remember both well, but the later shocks resonate with me more because as a newly minted 16-year-old driver, I was given the family job of driving around town hunting for gas for the family cars.

My first thought was that it was related to the speed and sharpness of the supply discontinuity.  Certainly the 1972 embargo represented a sharp supply change which took the world market a while to absorb, and what we have seen of late has been more gradual.  This is certainly part of the explanation, but incomplete, as the gas lines of the late 1970's were not accompanied by a similar discontinuity.  I might add that many economists at the time might have said that the speed should not matter that much, since it was accepted at the time that energy demand was inelastic, that it did not change much with price.  Therefore, the speed would not matter, since the market's corrective mechanism of price would not work well anyway.  Since then, we have learned that energy demand is very elastic, and that usage will adjust itself based on price.

My second thought was that regulation has a role in the explanantion.  Usually, when you see people queing up for a product or service, it means that prices or supply or both have been artificially limited.  Certainly last year's gas lines we got in Phoenix were almost entirely due to regulation.  Here in Phoenix, the government requires a blend of gas used no where else in the country.  The gas comes in from another state via a single pipeline.  Mobil tried for years to build a small refinery here to produce this blend closer to the market, but were never allowed by state regulators.  So, last year when the pipeline broke, we had shortages.  Our intrepid governor, as most politicians love to do in an oil shortage, blamed greedy gas station operators and oil companies for the problem.  However, when it came time to issuing her plan for dealing with the crisis, here were the first three steps:

• Temporarily repeal regulations setting the unique gas blend for Phoenix
• Temporarily repeal regulations on truckers to allow them to better take up the transportation slack
• Reevaluate regulations that have restricted the construction of a refinery in Arizona

LOL, so it is all the oil companies' faults but the solution was to repeal three sets of government regulations.  Much the same situation occured in the early 70's.  Richard Nixon was probably one of the worst presidents from an economics standpoint that we have had in the last half century.  Few people remember just how close we got to a government program of gas rationing and how loud the calls were for nationalisatoin of oil companies.  Fortunately this never happened, but other bad stuff did.  For example, the markets ability to close the supply-demand gap were limited by a number of pricing controls on oil and other energy subsitutes, regulations that were not repealed until nearly a decade later.  Even weirder, the US government put in place distribution rules that said that oil companies had to send each market (I think it was done county by county) the same proportion of supply as in the year before the embargo.  I am not sure what fear drove this rule, but the result was chaotic.  For example, the previous summer lots of people drove cross-country for vacation, filling up out on the interstate in the countryside.  With shortages, no one wanted to drive long distance.  As a result, rural areas typically had plenty of gas, and cities were running out.  Demand patterns shifted (duh) but the government would not allow supply distribution to shift to match.

The final, and perhaps most important reason, though, that we have not had long gas lines is because people are not expecting them.  Fear of gas lines is a self-fulfilling prophacy, for the following reason:

Take the example of 1972, and we will use typical numbers of that era.  Lets say there were 100 million cars each with an average 20 gallon tank.  Lets
say normally, people refill their tank when it is ¼ full, so on
average their tank is 5/8 full.  Doing the math, there are 5/8 times 20 times 100
million gallons actually in cars or about 1,250 million gallons.  That's right - one of the largest single inventories of gas in this country is in people's tanks.

Now, lets say
due to supply panic, everyone suddenly refills at ¾ full. No one wants to be caught short (I remember in the 1970's, people would wait in line to put a gallon or two in their tanks -- it was nuts).  In this case, on average they
are 7/8 full or there are a total of 1750 Million gallons in cars' tanks.  So, in the space of
what might be two or three days, people suddenly demand 500 million gallons above and
beyond their normal usage to increase their tank's inventory.  Boom, stations are
out of gas, which causes people to feel even less secure without a full tank, so
they inventory more (many in spare gas cans) and the problem gets
worse.

One of the conspiracy theories of the 1970's was that we had gas lines because oil companies were holding tankers offshore waiting for prices to rise (the early 1970's were the point in time where the leadership banner for conspiracy theory nuts was handed off from the right wing to the left).  The irony is that the answer to the "mystery" of where all the gasoline inventory went was right under people's noses.  If an average tanker of the time carried 500,000 barrels of oil, and each barrel of crude oil produces about 20 gallons of gasoline (in addition to all of the other fuels) then then the act of gassing up cars faster caused 50 tanker loads of oil to disapear into people's gas tanks.  The "missing oil" was right in their garage!

When I first heard the GM ad campaign to give consumers access to the same discounts their employees get, I had two reactions:

• I sure hope that they have some alternative employee incentive lined up.  I remember when I applied to GM as an engineer, this car discount was high on the list of how they sold the job.  Now what are employees thinking, since their employment buys them nothing on this dimension?  They are probably thinking they weren't getting much of a discount if GM can offer that discount to everyone
• If I were a stockholder, I would be selling, because it sure smacks as desperation.  If you think of all the incentives GM has offered over the years, if they are offering an incentive that is unprecedented in their 80+ year history, then you know there must be some panic in the boardroom

Only GM could come up with a program that makes both employees and shareholders upset.  George's Emploment Blawg has more thoughts along these lines.  This all assumes that "same pricing as employees"  means just that -- remember that this is the industry where "invoice pricing" means nothing of the sort.

Many people have analyzed GM's problems.  It is tempting to say that their main problem is that they have not good cars, but I want to be careful not to substitute my preferences for market research.  So, instead, I will point out a couple of facts:

• GM makes most of its profit from SUV's
• All the profit in a car line, given high fixed costs, come from the last 10-15% of the cars produced.

So, as gas prices rise and silly tax loopholes are closed [thanks Mark], SUV sales only need to fall 10-15% to wipe out most of GM's profitability.

I HATE most new loyalty programs at stores.  When loyalty programs really came in vogue with airlines, they made sense.  Airlines gave their best customers bonuses for spending lots of money with them.  Today, though, every store I go into has a loyalty program.  I have a Fry's card, an Albertson's card, and a Safeway card (grocery stores);  I have a Borders and a Barnes and Noble card;  I have an Ace Hardware card and a Best Buy card;  For god sakes,  I have a TGI Friday's card.  Not to mention the cards from American, America West, Southwest, Hilton, Hyatt, Marriott, National, Hertz and probably 20 others I can't remember off-hand.  I carry a stack of the travel related ones in a big rubber band in the bottom of my briefcase.  The rest bulge my wallet up to about an inch thick, even when it is (all too often) devoid of cash.

Did I mention I hate all these programs?  Most of them have no real reward for purchase volume, you just have to have their card in your pocket to qualify for the best deal.  What is the point of this --its not like they are rewarding purchase volume (in fact, grocery stores do just the opposite, by rewarding the people who buy the least with better service via the express lane).  Why do I need to fatten up my wallet to unmanageable proportions just to get a store's best price? 

This analogy will date me, but its kind of like all those women who used to carry eggs and live chickens in their purses on Let's Make a Deal in the hopes that Monty Hall will ask for that item to qualify for some prize.   When I check out in the grocery store, they even put little asterisks by certain items to remind me that I am not getting their best price because I have not shown them their plastic card.  Come to think of it, my Monty Hall analogy may be flawed.  It is more like the pagan gods refusing to provide rain until their hapless subjects had sacrificed the right kind of goat.  Now how would that be for a loyalty program -- "I am sorry Mr. Meyer, but you sacrificed a goat, and Best Buy requires that you sacrifice an ox to get 10% off that DVD player".

Well, the revolt (or, if you accept the pagan religion analogy, the reformation) begins today.  I chucked everything in a drawer except the travel cards.  The book store cards are easy - its Amazon all the way now.  I used to drop in and buy some impulse items at my local Borders, but with free 2-day shipping for the rest of the year at Amazon (I signed up for the offer) there is no reason to buy anywhere else.  Amazon always gives me their best price without a piece of plastic in my pocket or an animal sacrifice and I don't have to deal with that irritating reminder from the cashier at Borders that without their card, I'm not going to get their best price.

Time will tell whether I can live with the increased grocery prices that will come from not having their card, but I am going to give it a shot on principle.  The revolt begins -- anyone want to join me?

PS - should I name this effort my loyalty pogrom?

UPDATE:  Thanks David, I fixed "principle".

UPDATE #2:  Per the comments, I do indeed understand that  one of the major goals of  well-structured loyalty programs is to gather data about the customer.  However, I would argue that out of 100 companies gathering customer purchase data, maybe 3 know what they are doing with it - meaning that they do more than just make nice powerpoint slides for the bosses with the data.

Take an example of my grocery store, Fry's.  Fry's has a loyalty card you must present at the register to get the best pricing.  Once you present the card, the checkout person will tell you at the end of the transaction how much you saved by using the card.  But half the time the people around me forget their cards, and the checkout person asks other people in line to lend their card, so the hapless customer who forgot theirs can still get the better pricing.  In other words, if the data is really being used, it is corrupted.

But how do they use the data?  Certainly bricks and mortar stores have limited options - they can't do like Amazon does and present me with a custom selection of goods when I first walk into the store.  They might send me a customized coupon package, but I have found no evidence that any loyalty program I have used has ever done this.  My guess is that most of the data just feeds the voracious appetite of the bosses to see data.  At best, the data might be used in vendor negotiations, but I doubt this too.

By the way, to provide a customized customer experience

UPDATE #3:  One of my friends who used to work with me in the pricing practice at McKinsey & Co. suggested that the cards may be a way of maintaining multiple pricing levels for different customers, much like airlines have done for years with business and leisure travelers.  The theory goes that the most price sensitive will get and use such a card, while the busier, perhaps wealthier and less price-sensitive shoppers won't bother.   This is certainly possible, but if this is the strategy, they certainly need to train their register people not to shout all over the store to find a card for shoppers that don't have one.  Since I put my Fry's card in the drawer last week, I have visited the store three times and every time the register clerk, without my asking, has borrowed a card from someone else so I could get the discount.

Café Hayek has a good post on pricing and marginal cost:

Economists: loose your devotion to marginal-cost pricing. The best prices are not necessarily those that equal marginal cost. Prices above marginal cost help convey important information "“ namely, information about the value of the capital invested that makes provision of the good or service possible in the first place. This information, in turn, is important to entrepreneurs searching for profitable places to invest their money and energies.

This article is particularly helpful in the context of pharmaceutical cost regulation.  Activists of the socialist/progressive bent consider any pricing above marginal cost to be evidence of monopoly, market failure, rapacious greed or all of the above -- but in any case a call for government action.  This article helps reinforce the case of why pricing above marginal cost is not necessarily a market "failure".  In the case of US Pharmaceutical pricing, drug pricing today is evidence of market failure only if one wishes to see the market fail to develop any new drugs in the future.

A regular feature, it is explained here. Many of our ACME products come courtesy of this site.

Usually, to keep with our theme, I try to stick with products used by our friend the coyote. Given that the weekend is approaching, though, and you may be looking for the right purchase to start out your weekend, consider this great ACME product:

I can imagine the pricing:
Talking Model: $20.00
Non-Talking Model: $30.00

Enjoy!

Business Pundit has a post today about a new auction site named jittery. 

One thing BusinessPundit mentions is that the new site will have a

"Buy Offer" feature, which I believe gave him the idea in the first place. Basically, instead of buyers competing over an item and raising the price, buyers specify what they want to buy, which features are important, what prices they want to pay, and sellers compete to give them the best deal.

I am extremely skeptical that this would work.  As background, I ran the marketplace portion of Mercata, that similarly tried to bring a different, more buyer focused model to table and failed fairly spectacularly.  We found that you can be as innovative as you want, but you need a lot of traffic to your site, and building such traffic takes a lot of time or a lot of money or both.  You also need to provide a value proposition for both buyers AND sellers.

A LOT of people have tried some sort of reversal of the auction process, where buyers specify the goods they want and sellers bring them to the table, bidding against each other (ie lower and lower prices) to get the business. FreeMarkets made some hay with this in the B2B world, but from the beginning the auctions were never really the money maker, but were a Trojan horse for supply chain consulting, which helps to explain why they merged with Ariba. 

The only people to make this model work in the consumer area is Priceline.  However, what most people fail to realize about Priceline is that it fulfilled a real business need for SELLERS, even more than for buyers. 

Airlines have a classic fixed cost pricing problem.  They want to sell as many tickets at a high price as possible, but an incremental passenger costs them nothing, so if the plane is not full, getting even $50 for a passenger to fill an empty seat at the last minute is profitable to them.  The problem is somehow offering the $50 fare only to the passenger who would not fly otherwise, and not cannibalizing the customers who are willing to pay $300. 

The problem is, if they offer the $50 fare to anyone, they can't hide the fact very well.  The airline industry, as most know, have very transparent computer systems that let everyone know their prices on every route every minute of the day.  If an airline cuts prices on a route, everyone knows - so that competitors can match the cut immediately and customers can switch from the higher to lower fairs.  Airlines protect themselves somewhat with limited availability of certain fares and advanced purchase requirements - so that people, particularly business travelers, who need to maintain flexibility, have a reason to pay higher fares.

However, advanced purchase requirements were not providing enough protection.  What airlines really wanted was a way to cut fares for one person who might not have flown otherwise, and let no one else see them do it.   And Priceline was the answer.  Yes, airlines had to tell the Priceline computers what the lowest bid they would accept from a customer for a flight was, but this did not constitute an official price that went into the reservation systems.  So, the airlines could cut their price (via Priceline), but only the customer who got the price ever saw it.

In fact, the story is even better.  At the time Priceline came around, one airline had a particular problem they needed to solve.  When TWA got a loan from Carl Icahn, an almost unnoticed part of the deal was that a certain travel agency owned by Icahn, small at the time, would be guaranteed TWA tickets at a healthy discount off the lowest published fares.  This agency, with this boondoggle, grew to enormous size as Lowestfare.com.  TWA, beyond the reasons listed above, therefore had a second reason for not wanting to publish their lowest possible fare.  Normal limitations that most airlines could set on how many seats would be available at their lowest fare could not be enforced by TWA.  If they offered a new $100 fare, Lowestfare.com could blow out an unlimited number of tickets at $80 or less and TWA would have to accept it.  Therefore, by offering discounts unpublished via Priceline, TWA prevented the travel agency from getting inventory even cheaper.  And so, a huge portion of the early Priceline inventory was TWA.  (ironically, after the American Airlines acquisition of TWA killed the deal, the Lowestfare.com URL was bought by ... Priceline.

Anyway, I just don't see how reverse auctions can work in the consumer world, particularly if the customers are allowed to specify price and quality and features, etc.  The transaction costs for suppliers would be just too high wading through this stuff -- in fact, many companies in the B2B world, where transaction sizes are in the millions, have come to this same conclusion - for a variety of reasons, they are choosing not to participate in reverse auctions (here too).

Marketplaces must offer value to both buyer and seller.  If you don't offer honest value to sellers, then no products appear on the site and it will fail.

Basically, there are two gorilla's in the online marketplace arena - eBay and Amazon.  eBay had the head start in building a brand and community in the marketplace space, but Amazon has brought some really nifty technology to the table.

As a user of both, I welcome a new competitor, sortof.  I hope that there will be competitors who force eBay to adopt some overdue new features (e.g. auction sniping protection and better search features on past auctions) but I don't really want any to be successful enough to create a third or fourth or fifth major platform out there, because that just increases my search costs and time when I want to buy something.

UPDATE

I missed pointing out one bit of irony.  The Internet is generally attractive to consumers because it increases product information, and particularly increases knowlege about market pricing.  However, in this case, Priceline's attractiveness to airlines was that it decreased pricing transparency in the market.

UPDATE #2

Welcome Carnival of the Capitalists readers.  Have a look around, and check out our thoughts on replacements for Dan Rather.

Socialized medicine supporters in the US often talk about Canada's really, really good and affordable care. Except no one can have any, but if they could get any care, I am sure they would love it. Check out this company, Timely Medical Alternatives. Specializes in getting you to the US so you can actually have your operation. Sure must be a mess if there is a niche for this.

And by the way, please don't tell me about lower drug prices in Canada. International markets pay marginal cost for drugs (ie just production cost) and we in the US pay full cost (ie including the development costs of the drug plus all the failures). Expanded programs to import marginal cost drugs from Canada will only mean that Canadian drug prices will go up - ours are not going down to those levels. And, if you pass a law saying somehow that they can't raise their prices in Canada and we can import at those prices, then drug R&D is over. Even if you told the drug companies that they were working for the good of man rather than profits, and dropped all their profits into lower pricing, you wouldn't get more than a 10-20% (depending on the company) price decrease for drugs. Are you really ready to kill all future drug innovations for a 15% discount on the current ones?

UPDATE

The Canadians have now made clear that they will not accept the Kerry plan for mass drug re-importation from Canada. Why? One would think that the socialized medicine supporting politicians in Canada would support Kerry and other socialized medicine supporters in the US. Fellow travelers stick together.

The reason, is, of course, that the Canadians have long ago recognized the truth in what I said above. US massive drug re-importation will just cause drug companies to raise prices in the target countries. Canada likes the below-full-cost pricing they get on drugs, and are opting to let the US keep paying for its drug development.

A regular feature, it is explained here. Many of our ACME products come courtesy of this site.

Usually, to keep with our theme, I try to stick with products used by our friend the coyote. Given that its almost Friday night, though, and you may be looking for the right purchase to start out your weekend, consider this great ACME product:

I can imagine the pricing:
Talking Model: $20.00
Non-Talking Model: $30.00

Have a great weekend!