Wednesday, September 23, 2015


I've been following the criticisms and supporting comments surrounding Martin Shkreli's decision to raise the price of the anti-parasite drug Daraprim from $13.50 to $750 per pill. One thing is clear. The criticisms are many, visceral, and deep. 

It's also clear that, for the moment, Shkreli is probably as popular as the dentist who killed Cecil the Lion.

As far as I can see those who want to defend Shkreli can be bunched into three groups of people, who want us to focus on: 1) Shkreli being a capitalist, 2) Shkreli's need for research and development cash so he can do good, and 3) the need for private money to make our world go around.

Let's take a look at each one of these points. 

1. He's a capitalist ... 

Actually, Shkreli's not a capitalist. As a hedge fund manager he made his money in a highly regulated financial market that allowed him to gamble and short (bet against) market players. Shkreli was able to make a quick buck because he happens to live in a world where regular market bailouts ($4.3 trillion and counting since 2008), favorable legislation (especially the deregulation of financial markets), and unequal tax structures (Shkreli pays a lower tax rate than you and me) that allow enormous write-offs, which helped Shkreli to legally gamble his way into wealth. 

Put another way, with regular bailouts and favorable legislation Shkreli made his money pretty much the same way that little kids score big in a bumper bowling tournament. Without the bumpers (of bailouts and favorable legislation for Shkreli) Shkreli's probably just another kid throwing a tantrum.

2. Shkreli's only trying to raise money for research and development ...

Actually, this one's Shkreli's argument. 

Assuming that this is his real motive, we need to keep one thing in mind. A report from a Joint Economic Committee of Congress pointed out that of the 21 highest ranking therapeutic drugs introduced between 1965 and 1992 public funding was "instrumental" for 15 of those drugs. 

This shouldn't come as a surprise. As the report notes, private research is not only built "on a foundation funded by federal research" but many of the ideas underlying the private sector's commercial success "were developed by federally funded research" that took time and teams of researchers to develop.

This helps explain why the Obama administration's $5 billion grant to the National Institute of Health (NIH) in 2009 represented the "single largest boost to biomedical research in history." Because NIH funded research creates the conditions for more projects and new medical breakthroughs the Joint Economic Committee also found that NIH funding has a net economic rate of return of 25-40% per year. 

This makes the NIH grant a jobs creating engine.

Now, I'm not going to say that Shkreli's R&D motives are impure. But up to this point Shkreli's "investment" model doesn't show a history of plowing hundreds of millions of dollars into projects over a 10 to 20 year period. It's more of a wealth extraction model. 

Then we have this. Unless Shkreli's a got a bio-medical network at his disposal, or a team of research universities available to him that we don't know about, Shkreli's stated R&D motives seem fanciful, and less than sincere.

3. We need the private sector to make the world go round ...

Let's make this real simple. Inventions and creativity have been happening since the dawn of time. History tells us this. Initiative and innovation are human constants, and depend on many factors that go beyond tax cuts and deregulation. 

As I've pointed out in previous posts, Benjamin Franklin's lightening rod, penicillin, and Jonas Salk's polio vaccine are examples of this. The influenza outbreak during WWI stirred curiosity and spurred some of the greatest publicly funded medical research that the world has ever seen. History is full of many other examples where phenomenal breakthroughs were made for reasons beside monetary gain. 

The thing we want to keep in mind is that people invent and do things for reasons that go beyond the profit motive or tax cuts. Think about the things that were invented in the 1940s and 1950s when the tax rate on America's wealthiest wage earners was 90 percent

Whether it's pride, personal goals, accident, art, nationalism, or simple curiosity, the human experience shows us that the private sector and tax breaks for the rich aren't the only instigators behind human creativity. 

Below is a very partial list of creativity and products that were built without the promise of tax breaks, the profit motive, or deregulation.



Do you like ear thermometers, memory foam, scratch resistant lenses, invisible braces, shoe insoles, satellites and long distance communication, ionized adjustable smoke detectors, road safety grooving (which cuts hydroplaning), cordless tools (for Apollo missions), water filters (ionized charcoal), kidney dialysis, cat scans, cancer fighting drugs and shiny hair, and deformable mirrors (which provide 100 times the imaging), among others? Thank NASA for directly building or having a hand in these and more than 6,300 other patented inventions

But, contrary to common folk wisdom, TANG was not one of NASA's inventions. That's a myth. 


The military connection ... Anesthesia (Civil War), nuclear energy, the computer (from code breaking), the internet (cold war invention for use during nuclear war), satellite communications, synthetic rubber, penicillin, jet engines (thank you German military scientists), submarine technology (American Revolution), and Pepto Bismol.

Perhaps the best example of a military-related invention is the story of the most popular gun in the world, the AK-47. Mikhail Kalashnikov, a Russian tank driver came up with the idea for the AK-47 while recovering in a military hospital during World War II. Around the world between 75-100 million AK-47s are in use today, which makes it the most popular gun in the world. 

And if we want to stretch it, even the Rosetta Stone was discovered as a result of a military campaign (Napoleon's romp through Egypt). Anthropology and the study of languages haven't been the same since.


Do you like the microwave, Viagra, artificial sweeteners, Popsicles, brandy, Teflon, and penicillin? They were accidents of curiosity. So were Velcro, X-rays, the pacemaker, super glue, and play-doh. 

Then we want to keep in mind that while Thomas Edison wanted to make money, reproducing music wasn’t what he had in mind when he invented the phonograph. 

And the list goes on ...

At the end of the day, we need to understand that Shkreli is not a rugged individualist capitalist. He's had lots of help (bailouts) and protection (favorable legislation and tax gifts) from the state. 

He's also moved money in markets that has rules about what can be owned and traded (slaves? babies? sex workers? Congress? body parts?), under what terms (patents? monopolies?), and under what conditions (Ponzi schemes? contaminated foods? enforceable warranties? slave labor?). 

Now Shkreli wants us to believe that he stumbled as he was trying to do good, and that the human race needs people like him to make things better for the rest of us. I don't buy it. And I don't buy his recent conversion and change of heart after realizing there were "mistakes made" in the rush to do good (funny how that happens when you get exposed). 

So, yeah, Martin Shkreli is probably a bigger dirt bag than you think.

- Mark

Addendum: Here's an interesting twist. PhRMA, the pharmaceutical's main lobbying group, tweeted that Shkreli's company "does not represent the values of PhRMA member companies." 

Hat tip to Tom for the Shkreli-Salk meme.

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