Between the day before the general election, November 6, and the day it became clear that Democrats would control both houses of Congress, November 9, the S&P 500 changed little. Pharmaceutical companies, meanwhile, lost about 4% of market capitalization on average, while some, such as Merck, lost more than 6%.

To understand the reaction of pharmaceutical investors in November, tune in Friday to the deliberations in the House of Representatives. The House will consider, and presumably approve, the Prescription Drug Price Negotiation Act of 2007, known as H.R. 4, requiring the Bush administration to negotiate with pharmaceutical companies for prices on drugs for the Medicare program.

Friday’s House speeches will have familiar industry-bashing rhetoric. The speeches will also have the following illogical argument: Because of its size, the government has “buying power” and therefore should negotiate drug prices. If a congressional representative used the same formulation for government negotiation for the price of bread, milk, or gasoline, practically everyone would immediately recognize the irrationality of it all.

If the federal government truly had the magical ability to lower prices through buying power, why stop with pharmaceuticals? Surely, Americans would like the government to lower prices on everything from cars to baseball tickets.

When it comes to pharmaceuticals and Medicare, many observers simply suspend rationality and assume that the usual laws of supply and demand — and common sense — do not apply. To the detriment of practically all health care consumers, the government already regulates rates for many Medicare services. Why not add pharmaceuticals to the list?

When Medicare began in 1965, health care costs for the elderly were relatively small, and pharmaceutical costs were almost an incidental part of those costs.

A rational person in 1965 could have foreseen only some of the problems that have plagued Medicare over the last 40 years. Medicare costs were almost certain to grow as the result of demographics, as the elderly were almost certain to live longer. It was also reasonable in 1965 to expect technological progress and health care advances to be costly, and to expect that an entitlement program would grow more rapidly than nonentitlement government programs.

Still, it would have been unreasonable in 1965 to predict health care expenditures would more than double as a share of GDP by 2005, to make up more than 16% of the economy. Medicare’s growth has been even more staggering. Congress changes Medicare law every few years, and with each change, the program grows larger. Medicare expenditures alone were 3.2% of GDP in 2006, up from 0.0% 41 years earlier. Per-person health care costs for the elderly increased by 800% in real terms between 1963 and 2000.

Now, the American public is being asked to believe that the same federal government, which has administered a financially undisciplined Medicare program for decades, will suddenly have the savvy to negotiate better prices for prescription drugs than scores of private health care plans with professional buyers.

Medicare costs have grown disproportionately for many reasons, but there is little reason to believe that government negotiation on prescription drug prices will apply any meaningful downward pressure on costs. Our federal government is the exclusive buyer of many services and manufactured products, such as military aircraft, but few observers would claim that prices negotiated by the government are lower than other prices. Some contractors remain in business not because our government is a ruthless contract negotiator, but precisely because it is not. Factors other than price and quality enter into many negotiated government contracts, and these same factors could become more prevalent under the proposed H.R. 4.

Rather than working to advance the medical technology frontier, many health care and pharmaceutical businesses will be forced to push forward the government contracting frontier. These contracts, over which individuals will have no choice, will stand between Americans and better health care. H.R. 4 will take America, yet again, in the wrong direction.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.