Price Gouging of Daraprim

In September of this past year, a unique action taken by a minor pharmaceutical company known as Turing dominated the news. Martin Shkreli, founder and CEO of Turing, found himself instantly in the limelight for his quite controversial actions

Daraprim is a medication used in the treatment of certain infections. The most common infection, known as toxoplasmosis, is a parasitic infection of the brain and eyes that is particularly worrisome for people who are HIV positive. Daraprim is a long established drug that has been heavily used in the treatment of people with AIDS and cancer for the past 62 years. The drug once cost only $1 per tablet and cost $13.50 for a long while until September. Once Shkreli’s company acquired sole ownership of the drug, they raised the price 5556% to $750 per tablet.

Courtesy of Daily Mail

To many, this price gouge was unethical, despicable, and a variety of more profane things that I’ll leave to your imagination. However, this wasn’t the first time that price gouging struck the pharmaceutical industry. There are countless examples of significant price increases once a certain company became the sole distributor and producer of a certain drug. It’s often being done on newer drugs for cancer, Hepatitis C, and high cholesterol, but there are some cases of older established drugs being drastically hiked in price. Cycloserine, a long-used drug for tuberculosis, was hiked from $500 for 30 pills to over $10,000 this past year as well.

In fact, in a topical vein, two members of Congress reached out to Valeant Pharmaceuticals after they raised prices on two heart drugs by 525% and 212%. One of these congressman – presidential candidate Bernie Sanders.

But, I digress. Back to the bold businessman Martin Shkreli. A former hedge fund manager, Shkreli formerly served as CEO of a different pharma company known as Retrophin. While leading Retrophin, Shkreli also jacked up prices on a well-established kidney disease to over 20 times the original cost. Clearly, Shkreli has a history of aggressive business maneuvers to couple the absolute harshness of his impossible-to-type last name.

Courtesy of CNN Money

Initially, I felt about how you probably do right now; Shkreli is a shmuck. It’s absurd that any one company can step in and do the ridiculously steep price gouge that Turing did. There has to be some sort of legal loophole that Turing stepped through, and we need to close it. Actually, though, there is nothing illegal (or even vaguely illegal) about what they did to the price of Daraprim. To this end, it seems like a huge oversight by the legislative system that there isn’t some sort of control on price changes in the medical sector. These price hikes are toying with people’s health. Even though our market is a free one, when peoples’ health is at risk, there has to be some sort of control.

Without legal control over the system, the Infectious Diseases Society of America and the HIV Medicine Association sent a letter to Turing. In the letter, the two organizations (obviously) criticized the price gouging, arguing that it is unsustainable in the current health care system and unjustifiable given the current patient dependency on Daraprim.

In response, Shkreli claimed “This isn’t the greedy drug company trying to gouge patients, it is us trying to stay in business”. Representatives of Turing claim that the price hike was required in order to fund research that Turing was doing in other potential cures for toxoplasmosis. Dr. Aberg, of Mt. Sinai Hospital in NYC, disagrees, hypothesizing that the price hike “seems to be all profit driven for somebody…and think[s] it is a very dangerous process”.

Many agreed with Aberg’s negative perspective on Shkreli’s actions, including, most notably, Presidential candidate Hillary Clinton. Soon after the news broke, Clinton tweeted that this sort of price gouging is outrageous and that she will be planning ways to remedy this practice.

Courtesy of CNN Money

While this all seems like a reach for an ethics of money blog, this price gouging epidemic (a health pun for you dedicated readers) is incredibly controversial and strikes at the heart of some key economic issues. The debate itself comes down to regulation vs. free market principles. Shkreli formed a monopoly on Daraprim and then jacked the price up, a perfectly valid and legal action for someone who has entire pricing control over a product. Without being undercut, Shrekli can do whatever he wants with Turing. To many, this seems unethical, especially when it comes to medical products. For a drug that prevents HIV sufferers from getting life threatening infections, it seems that some control should be in place to protect the consumer.

Monopolies have always been the root of some problems. Many criticize the free market for not protecting consumers from the steep prices that monopolies can yield. Ever since Cecil Rhodes found all those diamonds in South Africa and formed the first monopoly, people have hated the idea. Unless, of course, you’re the smug monopolist.

Courtesy of The Daily Sheeple

Greek Debt Crisis

The Greek Debt Crisis has been an omnipresent facet of the global financial scene for the past six or so years. Beginning in late 2008 after the housing market crash stateside and the following economic calamity, Greece found itself rapidly slipping out of solvency, and the crisis was born. Considering how much I’ve heard about this issue without knowing a single thing about it, I thought that an investigation and the dissemination of what I find would be valuable for both my readers and me.

The seeds were the crisis were planted in 2001 when Greece replaced the drachma with the euro. The euro was appreciating internationally, and everything looked splendid for the EU as they pushed for a uniform currency across the continent. In order to join the Eurozone, countries has to prove that they were “economically convergent” (somewhat similar) to the other Eurozone nations. Fundamentally, the Greek economy isn’t as strong as the Western European nations such as Germany or France, but the EU seemed to disregard this discrepancy.

In joining the Eurozone, Greece reportedly hid information about its true economic situation. According to CNN, it is a common consensus that Greece covered up its budget deficit that exceeded the economic convergence requirement of less than 3% of GDP. In fact, Greece reported a deficit of only 1.5% when the number was actually over 8%.

While Greece spent a few years in economic limbo, the global economy was rocked by the American housing crisis in 2007/08. The Greek economy was already faltering, struggling to make ends meet and cover their growing deficit, and the crash only made things that much harder. Other countries in the Eurozone could sense the struggle, and they, mistakenly so, had bound themselves to the sinking ship of Greece. They had no choice but to help.

Come 2010, Eurozone leaders agreed to bailout Greece to the tune of 110 billion euros, contingent on Greece improving taxation measures and trying to work towards eliminating the annual deficit. In comparison to Germany, one of the strongest economies in the Eurozone, Greece is far inferior when it comes to tax collection, as shown in the following graphic.

Image Courtesy of the Washington Post

To meet the conditions attached to the bailout, the Greek government was forced to lay off many workers, only deepening the spiral as the government struggled to generate revenue with fewer workers. In 2012, with the prior bailout having been ineffective, another bailout was issued, raising the total debt to 246 billion euros, over 130% of the GDP of Greece. However, for complex economic reasons, the situation continued to worsen as unemployment climbed to 30%. 

Image Courtesy of the Washington Post

As of June 2015, drowning in debt and battling rampant unemployment, the Greek economy was between a rock and a hard place. They could try and put up the money somehow to pay the debt, but, realistically, they needed debt relief. To this end, Greece actually defaulted on a loan repayment to the IMF, becoming the first advanced country to do so, according to ABC. This default capped the largest fall in GDP in an advanced economy since 1950: 25%.

Image Courtesy of RBS Economics

Last year, Greek exit from the Eurozone was a real possibility. In an attempt to abandon the forced austerity (decreased spending) from the EU, Greece was tempted to abandon the euro and return to the drachma. However, no one quite knew what would happen in this situation, seeing as now country has ever abandoned the euro, although now Great Britain is considering it too. After a third bailout deal in July 2013, Greece decided to adhere to the austerity measures and forget the notion of abandoning the euro.

Why, though, hasn’t Greece been able to pull itself out of this economic hell? An article from Fortune.com points out that the bailout was poorly implemented, not focusing “enough on Greece’s uniquely dysfunctional state apparatus.” Normally, government spending can solve the economic woes, but the forced austerity measures only deepened the difficulty, causing the aforementioned 25% economic shrinkage.

Currently, according to an article from the Huffington Post, Greece is continuing to struggle under the austerity measures and the influx of refugees. Public spending has to increase to accommodate the thousands of new refugees, and this increase in spending works directly in opposition with the principle of austerity, meaning that Greece must spend even less in other areas to compensate. With the debt still not paid off, refugees complicating the situation, and global market volatility, it is impossible to predict, and almost just as hard to understand, the nature of the Greek economy.