That was one explanation in an NYT article on the limited use of direct injection of chemotherapy into the abdomen, even though there is clear evidence of this being an effective way to extend the life of ovarian cancer victims. The article notes that there has been some increase in the use of this method since the National Cancer Institute made a clinical announcement promoting its merits in 2006, but still only 50 percent of patients receive the treatment.
The piece offers the use of generic drugs, which don't provide large profit margins as one explanation:
"Dr. Markman [the president of medicine and science at Cancer Treatment Centers of America] said that when a treatment involves a new drug or a new device, manufacturers eagerly offer doctors advice and instructions on its use. But this treatment involves no new drugs or devices, so no one is clamoring to educate doctors about it. They are on their own to learn, and to train their nurses, a commitment that will take time and money."
This is an interesting, if tragic, example of the ways in which patent monopolies reduce the quality of health care. They push people towards the use of patent protected drugs even in situations where they may not be the most effective form of treatment. This problem is widespread, even if the consequences may not always be as serious.
This is an important piece of information that might have been worth including in a NYT article on premium increase requests by insurers in the state health exchanges. The Commerce Department reports that spending on personal health care services, which accounts for the overwhelming majority of health care spending, increased by 5.4 percent from the second quarter of 2014 to the second quarter of 2015. (The major item missing is prescription drugs, which did have a faster rate of increase.) This means that unless the insurers are facing a very skewed sample or they badly misunderstood the market, they should not need large premium increases to cover their costs.
The NYT had an article reporting on Secretary of State John Kerry's promotion of the progress made in reaching a final agreement between the twelve countries on the terms of the Trans-Pacific Partnership (TPP). At one point the piece quotes Kerry:
"No country can expect its economy to grow simply by buying and selling to its own people .... It is just not going to happen. It defies the law of economics. Trade is a job creator and prosperity builder, period."
Of course no one is proposing that countries not trade, so this is sort of a bizarre counter-factual. It would be bit like responding to opponents of a highway plan by saying that people depend on cars to get around. The assertion doesn't have anything to do with the merits of the highway, just as the fact that countries trade has nothing to do with the merits of the TPP.
As a practical matter it is entirely possible that the TPP will lead to less trade. The rules that the United States is trying to impose on patents and copyrights and other forms of intellectual property claims will lead to considerably higher prices for the protected items. For example, the hepatitis C drug Sovaldi would sell for less than $1,000 per treatment without protection, but sells in the United States for $84,000 per treatment with patent protection.
As a result of these higher prices for a substantial category of goods, the total volume of trade may actually be lower with the TPP than without it. For this reason, those who want to see more trade may have good reason to oppose the TPP. (The various studies that analyze the impact of the TPP have not incorporated the impact of higher prices due to stronger patent and copyright related protections.)
Actually, I want to skip over the minimum wage discussion (I'll come back to it) to address another issue in his column this morning. In his prelude to attacking the $15 an hour minimum wage Samuelson takes a swipe at the economic policies of the 1960s:
"Consider the 1960s. Economists convinced themselves — and the public — that, through government budgets and interest rates, they could minimize recessions and sustain “full employment.” Early success was astounding. By late 1968, unemployment was 3.4 percent. But this was simply an inflationary boom, not a sophisticated advance in economic management. Double-digit price increases soon surfaced. We spent 15 years (and four recessions) combating inflation."
This is close to incoherent. First, what does it mean to say "we spent 15 years (and four recessions) combating inflation." If he means that we had people in Washington concerned about inflation, he should probably had said 40 years. Much of the Republican party has been yelling about hyper-inflation even as the inflation rate remains stubbornly below the Fed's 2.0 percent target.
Does he mean inflation was a problem? Well perhaps it was higher than was desirable for much of the 1970s and the first few years of the 1980s, but that hardly makes it a crisis. After all unemployment has been higher than desirable (as measured by the Congressional Budget Office's estimate of NAIRU) for most of the last 35 years. Furthermore, the four recessions line also doesn't make any sense. We had four recessions in the fifteen years before 1960 also.
Furthermore, blaming the inflation on the 1970s on the policies of the 1960s is more than a bit bizarre. The more obvious cultpit would be the quadrupling of world oil prices in 1973-74 when OPEC first flexed its muscles and then again in 1979-1980 when the Iranian revolution shut off oil flows from what was then the world's largest oil exporter. The sharp reversal of oil prices in the early 1980s, as more oil came on line and demand fell, was a major factor slowing inflation.
In fact, the 1960s were a decade of rapidly rising living standards for large segments of the population. Productivity was growing rapidly and most workers were getting wage gains in line with productivity growth, or close to 2.0 percent annually. That's more than most workers have seen in the last fifteen years.
This brings us the Samuelson's "minimum-wage madness." In the period from 1938 (when the federal minimum wage was first established) to 1968 the minimum wage tracked productivity growth. This means that it not only kept pace with inflation, but minimum wage workers shared in the gains of the economy's growth. If this pattern had continued, the minimum wage would be $18.42 an hour today.
Undoubtedly there would be large-scale unemployment if we were to try to quickly move to that wage today. Much has changed in the economy over the last 37 years and besides, it would take time for businesses to adjust. However the more modest goal of $12.00 by 2020 is certainly a reasonable target.
As Samuelson notes, there would be somewhat fewer jobs with this wage, but it is important to understand what this means. The jobs affected by the minimum wage tend to be high turnover jobs. People often hold them for only a few months at a time. In this context, fewer jobs will mostly mean that it takes people more time to find a new job when they leave another job or when they first start looking for work. That could mean that low wage workers get to work somewhat fewer hours over the course of a year than they would have liked, but when they do work they take home 65 percent more than if they were working at the $7.25 an hour minimum wage. Most would probably consider this a pretty good deal.
Samuelson is right that the minimum wage levels can be set too high where the loss of jobs more than offsets the benefits of the wage gains. Some cities may be moving into this territory now, but certainly the U.S. economy can support a minimum wage in 2020 that is more than one-third lower relative to productivity than the 1968 minimum wage.
Last week the Washington Post again editorialized in favor of reforming the Social Security disability program by either reducing benefits and/or raising disability requirements. The editorial noted the reallocation of funds from the Old Age and Survivors Insurance program to the Disability program twenty years ago and told readers;
"The last tax reallocation, 20 years ago, 'was intended to create the time and opportunity for such reforms,' as the Social Security trustees’ report puts it; it would seem that the time, and the opportunity, are finally here."
In fact, it is not clear that there is any fundamental problem with the disability program that requires reform. If we go back to 2008, before the collapse of the housing bubble brought the economy to its knees, the disability program was in far better shape. It was projected to be able to pay scheduled benefits through the year 2025. Its projected shortfall over the program's 75-year planning horizon was just 0.24 percent of covered payroll or just over 12 percent of the program's projected revenue.
But even this projected shortfall was largely due to something that had been unexpected back in 1983 when the Greenspan commission made their recommendations to Congress for reforming Social Security. The commission had expected that 90 percent of wage income would be below the tax cap set at the time and therefore subject to Social Security taxes. This turned out to be mistaken as there was a sharp upward redistribution of wage income in the 1980s which continued into the next two decades. As a result, the program took in considerably less revenue than had been projected.
The figure below shows the difference below shows the difference year by year between the revenue the program would have received if 90 percent of wages had been subject to the tax and the revenue actually collected by the Disability Insurance (DI) trust fund. (The calculations also add in 6 percent interest on past revenue, which was roughly the interest rate on government bonds at the time.)
It really is amazing how the self-proclaimed intelligent people (in contrast to those who make "idiotic" arguments) are prepared to make arguments that are totally protectionist in their nature in support of the Export-Import Bank. Joe Nocera gives us a parade of greatest hits in his column today.
He starts by telling us that the Ex-Im "supports tens of thousands of good American jobs." Guess what folks? If we had a tariff on imported cars, the tariff would also support tens of thousands of good American jobs.
But wait, Nocera goes on to tell readers:
"The Ex-Im Bank that in its last fiscal year generated enough in fees and interest to turn over $675 million to the Treasury. Why would anyone in their right mind want to put such a useful agency out of business?"
Let's see, last time I looked tariffs also raise money. So Nocera convinced me, we should support tariffs on cars -- of course that would only be true if he were intellectually consistent.
Steve Rattner is right that the baby boom generation failed millennials, but he has the reason wrong. He argues that we failed the millennials because they may have to pay higher taxes to support our and their Social Security and Medicare.
It's hard to see the story here. We baby boomers have to pay much more in Social Security and Medicare taxes than did our parents and grandparents. Did they do us some horrible injustice? We do enjoy higher living standards and longer life spans, so what's the injustice if we pay another 2-3 percentage points of our wages in taxes? If there is some moral wrong here, it's difficult to see.
On the other hand there is the real problem that most millennials are not seeing real wage gains. This has nothing to with Social Security, it has to do with the fact that baby boomers let incompetent Wall Street types run the economy for their own benefit. This crew gave us the stock bubble in the 1990s and the housing bubble in the last decade. They also have given us an over-valued dollar. This creates a trade deficit that makes it virtually impossible to get to full employment without bubbles.
The net effect of the Wall Streeters policies has been the weak labor market of the last 14 years, which along with other policies has led to the bulk of the gains from economic growth going to the top one percent. Baby boomers should apologize for this upward redistribution, but the burden of Social Security is a molehill by comparison. If so much money was not being redistributed upward, real wages would be rising by 1.5-2.0 percent annually, taking 5-10 percent of these wage gains to cover the cost of longer retirements would not pose any obvious problems.
I should have also pointed out that Rattner repeats the nonsense claim that Social Security could save any substantial amount of money by taking away benefits from wealthy seniors. If we define "wealthy" to be a non-Social Security income of $80,000 per person (less than half the cutoff for "wealthy" when President Obama raised taxes in 2013), the program could save just over 1 percent of its spending by phasing out benefits for higher income individuals. While it is possible to get lots of money by taxing rich people, it is not possible to get much money by taking away their Social Security since they don't get much more than the rest of us. Rattner's plan can only save much money for the program if he wants to take away benefits from middle income people.
The Labor Department reported that the Employment Cost Index rose by just 0.2 percent in the second quarter. This brings the growth in the index over the last year to 2.0 percent. This undermines any claim that wage growth is accelerating.
With inflation still well under the Fed's target of 2.0 percent as an average rate of inflation (not a ceiling), and wage growth remaining flat or possibly even falling, the Fed would have little basis for raising interest rates to slow the economy. With this most recent report it seems likely that the Fed will put off a rate hike until the end of the year at soonest.
And the Fed and corporate governance structures. That is the implication of his column where he describes the debate over inequality as a debate "between people who think you need strong government to defeat oligarchy and those who think you need open competition."
Actually, his side in this debate thinks you need a strong government to enforce patent and copyright monopolies, jailing any potential competitors. It believes you need a strong government, in the form of a central bank, to slow the economy any time the demand for labor gives ordinary workers enough bargaining power to push up wages and demand better conditions from employers. And Brooks believes that the government should set rules for corporate governance that essentially allow top management to set its own pay, since it effectively controls the boards that set their pay.
It is these and other man-made rules that have given us an economy in which a very small segment of the population enjoys the bulk of the gains from the economic growth of the last thirty five years. (You can get more of the story in The End of Loser Liberalism: Making Markets Progressive.) All of these rules could easily be different. For example, we could rely on tax credits rather than patent monopolies to fund research along with more direct funding through entities like the National Institutes of Health (which is strongly supported by the pharmaceutical industry).
It is undoubtedly convenient for Brooks' side to pretend that the rules put in place to redistribute income upward are simply the natural workings of the market, but it is not true. It's unfortunate that the NYT can't find a columnist who would defend these rules on their merits rather than make an absurd claim that they are somehow facts of nature.
I'm not kidding, this is what he criticized Senator Bernie Sanders for in a Vox piece today. He apparently views it as outrageous that Sanders, a candidate for the Democratic presidential nomination, doesn't think that the United States should open its borders so that every person who in the world who wants to come and work in the United States has the opportunity to do so.
On the one hand Matthews has a point, there is an injustice in that people who were born in the United States are able to enjoy a better and longer life than people who had the misfortune to be born in a poor country in Africa, Asia, or elsewhere in the developing world. On the other hand, it is hard to see that as a greater injustice than saying that people who were born in wealthy and educated families in the United States, that could give their children the wealth and social training to enjoy a high living standard, have a right to a better standard of living than children who were born to less privileged families. Of course these children of privileged families will benefit from having more less-educated immigrants in the country since it will mean they have to pay less for their nannies and to have their lawn mowed and their house cleaned.
This problem can be solved much more easily than worldwide inequality. For example, let's eliminate the patent and copyright monopolies that redistribute so much income upward to these privileged children. Let's alter the licensing restrictions that ensure doctors and lawyers get outlandish pay. (We can use a lot more immigrants in these areas and the gains are large enough to have repatriations of a portion so that the home countries of these foreigners benefit as well.) And we can have the Fed not raise interest rates to keep the less privileged children from getting jobs.
Anyhow, we all have to decide for ourselves which injustices we find most worth fighting.
In a Wonkblog post, Ana Swanson complained that people are not sufficiently worried about the wealth gap by age. This should rate high on the list of items for people not to worry about. The basic reason is simple, for most people wealth is not a very good measure of their well-being and furthermore, the meaning of "wealth" has changed substantially over time.
If that sounds strange, let me make it simpler. If we go back thirty years, most middle income retirees could count on getting a substantial amount of retirement income from a defined benefit pension. Today that is much less likely to be the case. This means that to maintain the same standard of living in retirement, someone reaching retirement age would need much more wealth today than was true thirty years ago. They are also likely to need considerably more money, relative to their income, to cover health care costs since Medicare covers a much smaller share of health care costs today than it did thirty years ago. For this reason, the sort of comparison of the wealth of retirees or near retirees shown in the figures in this blog are not very useful for showing trends in wealth through time.
There is a similar story for young people. Young people never had much wealth so whether a 30-year-old has 40 percent more or less of a net worth of $8,000 is not going to mean much for their life's prospects. Furthermore, measured wealth may actually be inversely related to a young person's economic prospects. While someone who accrued $30,000 in student loan debt getting a degree (or possibly not getting a degree) from Corinthian College is in bad shape, a person who ran up $150,000 in debt getting a Harvard MBA is likely to do just fine.
For these reasons, the wealth of young people is not a very useful measure. We can look at their income and see how that has changed over time. That does not look good for high school grads, nor even people with a college degree. This should provide a serious basis for concern about the economic well-being of the young, much more so than their lack of wealth.
Paul Krugman rightly mocks Jeb Bush for taking credit for the strong growth in Florida during his tenure as governor. As Krugman points out, the reason for the strong growth was that Florida had one of the worst housing bubbles in the country. Its collapse gave Florida one of the worst downturns in the country. (I had made the same point a couple weeks earlier to a reporter fact-checking Bush's claim on growth.) The weak banking regulation that facilitated the bubble is not the sort of thing you would think the Bush campaign wants to boast about.
But it is not just Governor Bush who is prone to boasting about bubble driven growth. The boom in the last four years of the Clinton presidency was largely driven by the stock bubble that developed in these years, with price to earning ratio rising to levels not seen since the 1920s. The collapse of this bubble gave us the recession in 2001. While this downturn was very mild if measured by GDP, from the standpoint of the labor market it was quite severe. We did not get back the jobs lost in the downturn until January of 2005. Until the more recent recession this was the longest period without job growth since the Great Depression.
The interesting lesson from the 1990s boom was that the economy could sustain much lower rates of unemployment than had been previously believed. The unemployment rate hit 4.0 percent as a year-round average in 2000, most economists had previously argued that the unemployment rate could not fall much below 6.0 percent without causing spiraling inflation. This indicated that as a supply side matter, the economy could support the high levels of employment/low levels of unemployment of the late 1990s.
However, the problem is the demand side. The channels to create the demand needed to get to low rates of unemployment — either larger budget deficits or lower trade deficits caused by a lower valued dollar — are blocked politically. (We could also look to reduce work hours through work-sharing, more vacation, paid family leave, etc.) This means that we may not see a strong labor market, like the one of the late 1990s, for some time.
But the key point here is that both parties are happy to take credit for bubble driven growth. Maybe there can be a quid pro quo where Jeb Bush will stop taking credit for the growth generated by the Florida housing bubble and the Democrats stop taken credit for the bubble driven growth of the Clinton years.
Actually, after running many near hysterical pieces on the horrors of the Social Security disability program, yesterday's editorial was reasonably moderate. Nonetheless, it concludes by telling readers:
"Though hardly the sole, or leading, cause of declining labor-force participation in the United States, SSDI is nevertheless a factor. Reforming it could raise the economy’s potential growth, as well as millions of people’s life prospects. The pending crisis creates an opportunity for bipartisan compromise, in which Congress diverts more money to SSDI — linked to structural changes. The last tax reallocation, 20 years ago, 'was intended to create the time and opportunity for such reforms,' as the Social Security trustees’ report puts it; it would seem that the time, and the opportunity, are finally here."
There are a couple of points worth making here. First, the reason that the program is projected to face a shortfall next year, rather than a decade from now, is due to the fact that we had incompetent people at the Fed and Treasury who were not able to recognize a $8 trillion housing bubble and that its collapse would do serious damage to the economy. If they had recognized this fact, they would have taken steps to stem its growth before it posed such a danger to the economy. If we had stayed on the pre-recession growth path, the program would be fully funded through 2025.
The other obvious problem with the Post's position is that it implies that the Disability program is too generous. In fact, the United States ranks near the bottom among wealthy countries in the share of GDP that goes to disability insurance.
There is a point that the program could be better structured to make it easier for people on disability to re-enter the labor market. Some steps have already been taken along these lines in recent years, but undoubtedly more can be done.
Note: The link to Eurostat data on spending on disability insurance as a share of GDP was broken. I replaced it with an link to OECD data, which is to a broader category (would include SSI), but should give the general story.
Clive Crooks apparently thought he stumbled on some new revelation when he read a piece by Robert Lawrence at the Peterson Institute for International Economics. Lawrence showed that we look at the pattern in average wages, and use a net measure of productivity (rather than gross), and a common deflator for adjusted wages and output, real wages kept pace with productivity growth, at least until the Great Recession.
I suppose Lawrence deserves some sort of congratulations, it took him less than a decade to replicate our work. Of course progressive economists had long known that the story of wage stagnation was overwhelmingly a story of redistribution among workers, from factory workers and retail clerks, to doctors, bankers, and CEOs. For this reason, the fact that average compensation had kept pace with productivity was hardly news to any of us, but I suppose the fact that Robert Lawrence and his centrist colleagues are now discovering this fact may qualify as news.
Apparently the NYT believes it does. A lengthy article on the growth of Chinese foreign investment told readers:
"But the show of financial strength [foreign investment by China] also makes China — and the world — more vulnerable. Long an engine of global growth, China is taking on new risks by exposing itself to shaky political regimes, volatile emerging markets and other economic forces beyond its control.
"Any major problems could weigh on China’s growth, particularly at a time when it is already slowing."
Usually investing in other countries is thought to both increase returns to the country doing the investment and diversify risks, since it is unlikely that foreign countries will be subject to the same problems that may be hitting China (or the U.S.) at the same time. It is interesting that the NYT seems to hold the opposite perspective.
The piece seems to imply that China is unusual in the demands it makes on the countries in which it invests:
"China is forcing countries to play by its financial rules, which can be onerous. Many developing countries, in exchange for loans, pay steep interest rates and give up the rights to their natural resources for years. China has a lock on close to 90 percent of Ecuador’s oil exports, which mostly goes to paying off its loans."
The United States took the lead in establishing the International Monetary Fund, which often acts as its agent in disputes. For example, in the East Asian financial crisis the I.M.F. imposed very detailed programs on the countries of the region, which set tax and spending schedules, changed regulations throughout the economy, and required the privatization of various industries. The conditions placed by China on the countries in which it invests may be different, but there are not without precedent.
The piece also bizarrely implies that labor abuses by U.S. companies or their contractors is a thing of the past, telling readers:
"Chinese mining and manufacturing operations, like many American and European companies in previous decades, have been accused of abusing workers overseas."
Of course there are many places in the world, most notably Bangladesh and Cambodia, where there are regular reports of workers, often children, working long hours in dangerous conditions to make goods under contract with U.S. corporations. Sometimes these workers are held against their will and have their pay stolen by their employers. This is an ongoing problem, not a historical concern.
In discussing the new Chinese infrastructure bank the piece tells readers:
"Washington is worried that China will create its own rules, with lower expectations for transparency, governance and the environment."
It would be helpful to know who in Washington says they are worried about these issues. Presumably all of Washington does not have these concerns. Also, just because politicians say these are their concerns, it doesn't mean they are their actual concerns. For example, it may just be possible they fear competition from a Chinese investment bank.
Thanks to Keane Bhatt for calling this piece to my attention.
Note: I edited this to make it clear that the labor abuses in Cambodia and Bangladesh are occuring at factories that produce items for U.S. corporations.
That's the assertion at the end of Robert Samuelson's piece on the 50th anniversary of the creation of Medicare and Medicaid. Samuelson tells readers:
"By 2030, the number of Medicare beneficiaries is projected to reach 81 million, an almost 50 percent increase from today. Meanwhile, higher health spending has squeezed other programs. That’s an ironic footnote for the triumph of ’65: By threatening the rest of government, the instruments of a liberal agenda — Medicare and Medicaid — have bred illiberal consequences."
In fact, the federal government spends considerably more, as a share of GDP, on education than it did before Medicare and Medicaid were created. There have also been expansions of spending in other areas, most notably the insurance subsidies in the Affordable Care Act. It is not clear that we would be spending more money in other areas if we did not have Medicare and Medicaid. It is possible that the success of these programs make the public willing to support spending in other areas.
Robert's comment reminds me of the obvious point that I should have included originally. Because seniors have most of their health care costs covered by Medicare, they have more money to pay for other things, like taxes for other government services. Samuelson is effectively arguing that if people had their taxes reduced by the amount they pay for Medicare and Medicaid, but had their health care costs increase by an even larger amount (Medicare is far more efficient than the private health care system) then they would be willing to pay more in taxes for other services. There is no reason to believe this is true.
A New York Times article may have misled readers by implying that a state or local government with inadequate pension funds is relieved of its pension liabilities. In the context of a court ruling on the constitutionality of a plan negotiated between the city of Chicago and most of its unions, the article told readers:
"An insolvent system would be able to pay retirees only about 30 percent of their benefits. The cuts before the court were less drastic, and in combination with other changes, were supposed to leave the workers and retirees better off."
Actually the city is still legally obligated to make the full payment for workers' pensions even if the funds are depleted. In this case the payment would have to come directly from current revenue or the sale of assets. Workers may in fact be better off with a reduced pension in the sense that they would care about the city's ability to pay current workers, in addition to retirees, and also its ability to provide necessary services, however it is wrong to imply that the insolvency of the pension funds would end the city's obligations to retired workers.
The Washington Post reported on a speech by former Secretary of State Hillary Clinton in which she decried corporate America's short-term focus and called on companies to invest in their workers. She did not indicate any specific proposals for bringing this about. In an earlier speech she had suggested tax incentives to promote profit sharing.
It actually is not hard to give companies more incentive to invest in their workers, we can just make it harder for them to fire them. According to the OECD the United States has by far the weakest employment protection legislation, meaning that it is extremely easy to fire workers. The United States is the only country in which even long-term workers can be fired immediately for no reason and with no compensation.
Laws that imposed some cost for firing long-term workers would give companies more incentive to invest in workers and ensure that their productivity continues to rise. This is a very simple and well-established mechanism that is likely to be far more direct than any tax scheme that Ms. Clinton might put forward.
While she has not put out any specifics of her plan to promote profit sharing, it is worth noting that Carter administration tax incentive to promote employee ownership has largely been used as a tax break for creative owners. For example, when Sam Zell bought up the Tribune Company in 2007 he used the money in the workers' pensions to create an employee stock ownership plan, which provided much of the money for the purchase. While this did nothing to give workers any effective control of the company, it potentially provided enormous tax advantages to Zell. (Since the company lost money, he turned out not to need the tax break.)
Bloomberg got into the act today with a quote from a Chinese economist telling readers:
"'A lot of entrepreneurs probably have invested in the stock market and now they have seen a significant loss,' Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a Bloomberg Television interview. 'As a result business confidence has lowered. In the past, sentiment tends to have a lot of impact on this survey.'"
The problem with story for arithmetic fans everywhere is that people only lost money on what they have invested since April. The Shanghai stock market is still up by more than 25 percent since the start of the year and nearly double its year ago level. In other words, not many people could be on net losers in this story, even if they are not quite as rich as they hoped to be.
This NYT article on various state bills calling for drug companies to reveal their spending on research for high-priced drugs might have been a good place to mention that we have alternatives to patent financing for prescription drug research. For example, the federal government already spends more than $30 billion a year on research through the National Institutes of Health. If this sum were doubled or tripled, it could likely replace the patent supported research now being done by the drug industry.
And, since the research was all paid for upfront, the great new drugs developed for cancer, AIDS, and other diseases could all be sold as generics. Then we would not face tough decisions about whether to pay for expensive drugs for people who need them. We also would have eliminated the incentive for drug companies to mislead the public about the safety and effectiveness of their drugs.
The NYT gave us a bit of the old "he said, she said" in an article reporting on the Obama administration's latest push for reauthorizing the Export-Import Bank. It told readers:
"While opponents contend that most of the bank’s money benefits corporate giants like Boeing, General Electric and Caterpillar, the small-business owners invited to the White House underscored supporters’ counterargument that most of the bank’s beneficiaries are smaller companies. Mr. Obama’s guests included the owners of Love & Quiches Gourmet in New York, Ferra Coffee in Texas and Bob’s Red Mill in Oregon."
Of course the opponents are right. The largest beneficiaries include companies like Boeing, Caterpillar and other huge companies. In a typical year the fifteen largest beneficiaries will get more than 85 percent of the bank's loans or guarantees and often more than 95 percent.
If President Obama and other supporters of the bank were actually concerned about the smaller companies who are the bulk of the bank's beneficiaries it could presumably propose that the bank be reauthorized with a cap of something like $10-20 million on loans per beneficiary. This would ensure that the small companies who were President Obama's guests could still get their loans, without giving taxpayer handouts to some of the country's biggest companies.
The article concludes by telling readers:
"'The Export-Import Bank makes money for the U.S. government,' Mr. Obama said, referring to the loan repayments and proceeds from borrowers. 'This is not a situation in which taxpayers are subsidizing these companies.'
In a fully employed economy (i.e. one in which the Federal Reserve Board is raising interest rates to slow the pace of job creation and economic growth) a below market interest rate loan that is issued or guaranteed by the Export-Import Bank is pulling capital away from other uses. This means that companies not favored by the Export-Import Bank will pay higher interest rates on their loans because of the loans supported by the Export-Import Bank. This is in effect a tax on other borrowers to support the companies getting loans from the Export-Import Bank.
Every economist in the Obama administration knows this to be true. It would have been helpful to point this fact out to readers who might otherwise believe that the Export-Import Bank has free money as President Obama appears to be claiming.