When I first heard the news reports that Martin Shreli had been arrested for various offenses, my reaction like, presumably many of my fellow Americans was that it couldn’t happen to a nicer guy. If you’re not up to speed on this story, here’s how the editors of the Wall Street Journal summarize things:
Mr. Shkreli is a former hedge-fund manager who until Friday was the CEO of Turing Pharmaceuticals. He had made himself a political target earlier this year by raising the price of a generic drug through the roof after buying its rights. The Obama Justice Department isn’t above targeting unsympathetic figures on Wall Street. But the criminal charges, as well as civil charges brought by the Securities and Exchange Commission, are detailed and extend to Mr. Shkreli’s behavior as far back as 2009.
The alleged deceptions include misappropriating funds and misleading his hedge-fund investors about how much he had raised, the success of their investments and his past performance. He also allegedly failed to disclose the millions he owed to Merrill Lynch after a short sale gone wrong.
The most serious charge is that Mr. Shkreli looted the pharmaceutical firm he used to lead, Retrophin, and then disguised payments from Retrophin as consulting deals for the hedge-fund investors he had mistreated. In other words, he allegedly stole from one group of investors to make up for losses to another.
I won’t prejudge this case and I don’t want to dwell on Mr. Shkreli’s misfortunes or take joy in them. I do think the case illustrates a point I’ve been wanting to make for some time.
There are reasons that people do or don’t raise prices that aren’t strictly speaking economic in nature. In other words although supply and demand are important they aren’t the only things. One of those other considerations is will raising your prices bring unwanted scrutiny?
The question you should ask is whether Mr. Shkreli would have drawn the attention of the feds if he hadn’t raised the price of that generic by thousands of percent? I don’t think he would.
Although I have no particular sympathy with Mr. Shkreli, I do think that’s something we should be concerned about. It’s a form of tyranny.
We have so many laws nowadays that you really have no way to know whether you’re breaking one or not and, frankly, the higher a flier you are the more likely it is that you’re breaking the law or, at least, skirting it.
My preferred solution to this problem is to decentralize, make things smaller. Have as many laws and regulations as are necessary but no more than are necessary and as you are willing and able to enforce. Everything should be sunsetted.
