The Biden administration is taking steps to address supply chain issues and reduce drug costs in the midst of the ongoing Covid-19 pandemic. However, there are doubts as to whether these actions will effectively curb inflation.
A newly-formed Council on Supply Chain Resilience, announced by the White House on Monday, aims to enhance the flow of essential goods and alleviate the pressure on rising prices. The council intends to leverage the Defense Production Act (DPA) to ramp up the manufacturing and distribution of vital medications.
Originally enacted during the Korean War to bolster supplies and equipment production, the DPA was also utilized earlier this year to expand the supply of ventilators and personal protective equipment throughout the Covid-19 crisis.
In addition to the use of the DPA, the initiative involves over $1 billion in investments by federal agencies to strengthen domestic food, energy, and defense supply chains. Simultaneously, the Department of Defense plans to release reports addressing the reduction of dependence on high-risk foreign suppliers within pharmaceutical supply chains and the establishment of a National Defense Industrial Strategy.
Nonetheless, it is unlikely that these actions by the White House will have a significant impact on the current U.S. inflation rate, which stands at 3.2% year over year—well beyond the Federal Reserve's 2% target. "This is unlikely to have any material effect on the inflation rate," remarked Paul Bracken, professor emeritus of management at Yale School of Management.
Data and anecdotal evidence suggest that the supply side challenges experienced during the pandemic have largely subsided in the United States. The Global Supply Chain Pressure Index published by the Federal Reserve Bank of New York reached a record high in November 2021 but has since declined to its lowest level in recent months. This indicates that the White House's efforts to support the supply chain are unlikely to restore inflation to the Federal Reserve's desired 2% target.
Maxwell Shulman, a policy analyst at Beacon Policy Advisors—an independent policy research firm based in Washington, D.C.—expressed, "At this point, it seems like the supply chain is not the biggest cause of high inflation. A lot of those problems have, thankfully for everybody, worked themselves out."
Addressing the High Cost of Medication: A Step Forward
While there may be some lingering supply issues within the pharmaceutical sector, market forces are expected to resolve them without government interference in the coming months, according to Bracken, an industry expert. The recent shortages of weight-loss drugs like Wegovy and Saxenda are primarily due to surging demand rather than supply-chain problems.
Pharmaceutical companies have been able to strike a balance that prevents significant headline risk and public outrage over the cost of certain medications, resulting in slower net price growth compared to gains in the consumer price index. This strategy has helped them navigate the landscape and address concerns around affordability.
However, experts Bracken and Shulman believe that Monday's announcement from the administration is more about creating an impression of action rather than a groundbreaking solution to the issue of high medication costs. Shulman emphasizes that winning public opinion on the economy is crucial for the upcoming 2024 presidential election.
Despite low unemployment and slowing inflation, American sentiment regarding the economy remains fairly pessimistic. The latest data from the Conference Board reveals that consumer confidence increased in November but only because the October reading was significantly reduced. November's figures were still lower than those of September, indicating a lingering negative outlook.
While Monday's actions may not single-handedly resolve the persistent problem of high overall inflation, they are not without significance. Focusing on improving the production and transportation of goods is a promising starting point for the administration's efforts to tackle drug costs, notes Javier Palomarez, Founder & CEO of the United States Hispanic Business Council. By reducing costs at these stages, businesses would have the opportunity to lower prices for consumers—a significant step given that healthcare expenses have long burdened Americans and continue to rise at alarming rates.
Originally written by Megan Leonhardt