If you had to believe one of the following people, who would you choose?
Heather Bresch, CEO of Mylan, makers of the EpiPen: “The misconception about our profits is understandable, and at least partly due to the complex environment in which pharmaceutical prices are determined.”
John Stumpf, CEO of Wells Fargo: “First of all, this was by 1% of our people.”
Janet Yellen, chair of the Federal Reserve Board: “In general, I would not say that asset valuations are out of line with historical norms.”
Two of the three people above were brought before Congressional committees so they could be scolded by U.S. Senator Elizabeth Warren and other upstanding, ethically pure members of Congress. Which two?
And finally, which of the three people above have had the greatest impact on you and on the economy?
Stumpf Grilled
Mr. Stumpf’s days as CEO of Wells Fargo are apparently numbered, because some of his company’s minions decided to open accounts for bank customers who never authorized them to be opened. This was done by employees to make quotas and earn bonuses.
The last we checked, it’s not illegal to provide incentives to employees and reward them based on performance. But Wells Fargo hasn’t handled the situation well. The bank fired 5,300 employees and paid a $185 million fine, but senior executives remain employed and Mr. Stumpf is expected to walk away with as much as $200 million.
Still, he might have given it all back to avoid the pummeling he had to endure from Senator Warren, the leading basher of capitalism in Congress, and other members of the Senate Banking Committee. We won’t repeat her lengthy diatribe, but you can read it here.
Bashing Big Pharma
Ms. Bresch is about as sympathetic a figure as Mr. Stumpf, as her salary rose by 750% over the same period that the price of the EpiPen rose by 550%. She was dragged before the House Oversight Committee and was lambasted for taking a private jet to get there. The horror of it all!
Here’s her explanation of the rising cost of the EpiPen, which is used to treat allergic reactions:
“In the complicated world of pharmaceutical pricing there is something known as the Wholesale Acquisition Cost or WAC. The WAC for a two-unit pack of EpiPen AutoInjectors is $608. After rebates and various fees, Mylan actually receives $274. Then you must subtract our cost of goods, which is $69. This leaves a balance of $205. After subtracting all EpiPen Auto-Injector related costs, our profit is $100 or approximately $50 per pen.”
Of course, it’s always fun to bash pharmaceutical companies, but they do save lives. And, given the cost and difficulty of getting new drugs on the market, it’s surprising that anyone bothers. Most drugs never make it to market, but those that do now cost an average of $2.6 billion to get there. Think about that when you listen to populists who want big pharma to give away life-saving drugs for free.
Do You Trust the Fed?
Mylan appears to have been taking advantage of inelastic demand for its product. Wells Fargo employees opened accounts without customer authorization. Both can rightly be accused of bad behavior.
But what about Ms. Yellen? The Fed has been put in charge of an $18 trillion economy. It can be argued that her actions and the actions of her board have a greater impact on our country than the actions of anyone other than the president.
The price of stocks today, like the price of the EpiPen, have been rising at a rate that defies logic. And yet she gets away with saying that stock prices are in line with “historical norms.” Just ask Joe Isuzu.
Consider, too, her explanation of why the Fed yet again didn’t raise interest rates when it met this month. She claimed that the economy is strengthening, but that inflation has not yet hit the Fed’s 2% target.
Ms. Yellen blamed falling energy prices for the Fed’s failure to achieve 2% inflation four times in her 603 word statement. Yet the Fed typically focuses on the core inflation rate, which excludes food and energy prices, allegedly because of their volatility.
Likewise, her comments about the economy are rooted in fantasy. Her statement that “the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year” could have been taken from any of the policy statements she’s given in recent years.
If the economy has been strengthening for as long as the Fed’s been saying it’s strengthening, we should be able to pave our highways with gold. Yet during its meeting, the Fed downgraded its forecast for 2016 economic growth for the third time this year—from 2% in June to 1.8%.
The Fed, which is routinely overly optimistic about economic growth, also lowered its estimate for long-term growth from 2% to 1.8%. So after 96 months of zero interest rate policy (ZIRP), economic growth remains at just over half of the pre-ZIRP average of 3.3%, but we can’t raise interest rates because inflation isn’t high enough.
No wonder even CNN Money acknowledges there is a growing debate about the Fed’s credibility.
The biggest whopper, though, is the Fed claim that it is not manipulating the stock market. Each time there is a hint of an interest rate increase, prices tumble. When it doesn’t happen, prices rise. Yet the Fed claims it’s not raising rates because it hasn’t hit its inflation goal.
Ms. Yellen would be more credible if she said, “I’m a political appointee. My career would be over if I were to raise rates before the presidential election.”
The actions of Mr. Stumpf and Ms. Bresch affect their shareholders and their customers. The actions of Ms. Yellen affect our country and the world economy.
It’s doubtful you’ll find Ms. Yellen or any other member of the Federal Reserve Board flying commercial class, but don’t expect Ms. Yellen to be grilled by Sen. Warren anytime soon.