Arthur Laffer, responding to reports that the Trump administration is readying some kind of executive action on pharmaceutical pricing, suggests in a Bloomberg View column:
As an alternative, Trump could use his deal-making skills to negotiate voluntary pricing restraints in the drug industry. Such restraints would reduce the distortionary effects that inevitably result when the government forces specific cost-control measures in areas that may not be the most efficient places to cut costs. Instead, voluntary pricing restraints would enable individual companies to determine the most effective ways to cut their costs to reduce aggregate drug spending....
One way would be for the president to appeal to companies nationwide for a commitment to keeping annual percentage price increases in the single digits. There could also be a call to limit the number of times during a year that companies increase their prices. It would be on the pharmaceutical companies to keep these promises, and, if they failed, President Trump could bring to bear significant social pressure.
Mr. Laffer also cites President Kennedy's negotiations of steel prices as a favorable precedent. I'm a huge Laffer fan, and I don't think anyone has been more outspoken than me in writing about Kennedy as a precedent for Trump. But while "voluntary" action may be — may be — better than mandatory action, it's only narrowly so. Whenever a president gets involved in price-setting and threatens "significant social pressure," it's not really genuinely "voluntary." The force of government power is being brought to bear.
As I write in my book JFK, Conservative, which is generally quite positive about Kennedy, the JFK campaign against the steel company price increases included tapping their phone calls and auditing their taxes. It was followed by a 5.7% one day decline in the Dow Jones Industrial Average. JFK tacitly agreed he'd made a mistake by getting involved; when the steelmakers raised prices again the following year, the president did nothing about it other than issue a statement observing that "selective price adjustments" are "characteristic of any healthy economy."
I'm not saying that drug companies should have free license to charge the federal government unlimited prices for medicine used by the military, the Veterans Administration, federal employees, or Medicare and Medicaid. But talk of the president and "voluntary" action raises my euphemism alarms, like hearing a teacher or manager say "I'm going to volunteer you" when what he or she really means is "I'm going to assign you."
