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Economic 'God Particle' Found

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“ This leads to its bizarre quality: when the price of a Giffen good rises, consumers actually buy more.

THE ECONOMIC GOD PARTICLE FOUND

When it was discovered that, “Households in the Hunan province of China bought more rice when they had to buy it at a higher price, and less when the price they paid was subsidized,” the penny dropped.

 “The reason for this is that, even when expensive, rice was still the cheapest source of calories available. Therefore, when the price of rice was cut, households had more money left over after buying rice. Some of this was spent on buying more expensive foods (meat, vegetables and fruit), which reduced their need for rice.

“For many years the classic example of a Giffen good was potatoes during the Irish potato famine. One problem with this was partly a lack of data to prove it (really was) a Giffen good. More fundamentally, given that the price rises were caused by lower supply, how could people have been consuming more? This example is mentioned here merely because it still occurs in many text-books — although it is likely to be dropped from future editions now that the Chinese example is known as “an embarrassment to economists.“ - Graeme Pietersz 2006-2008. All rights reserved. (Slightly shortened.)

Well, given all those red faces, if the upwardly spiraling prices of Giffen pharmaceutical drugs were subsidized, would you buy more?

YOU HAVE BEEN!

If you if you substitute the word “subsidization” for the phrase, “zero downward pressure on price” then translate that phrase into common, everyday English: “Medical insurance pays,” you get the same results: there is no control or ‘downward pressure’ on prices no matter how it is subsidized.

Who cares how much cough medicine costs if Medical insurance pays? Or how much the latest ‘even-before-they-are-medically-approved’ cancer drugs cost if Medical insurance pays?
You can see for yourself how easily that’s got out of hand – today you are paying outrageous, in fact criminally high, prices for drugs in order to subsidize the medical insurance companies that pay for them on your behalf.

So you are not only paying for high-priced drugs, but also paying insurance companies that have allowed those prices to get where they are – a double-Giffen ‘good god!’ scam.

___________ 

A fictional ‘price planning’ scenario in a Big Pharma boardroom several years ago:

Chairman: ANY CHANGE IN ASPIRIN DEMAND SINCE WE TRIPLED THE PRICE?

Sales Head: NO, SIR. MEDICAL INSURANCE PAYS THE EXTRA.

Chairman: QUADRUPLE THE PRICE AND MAKE MORE ASPIRIN!

(A quarter year passes.)

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Tom is a contributor to public debate on issues affecting our survival; works with a London and a South African think tank, is a working journalist and author.
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