Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is a Senior Economist at the Center for Economic and Policy Research (CEPR).
I'm not sure which it is since I never met the guy, but it really is tiresome to see people try to pass off as a serious argument on health care something that anyone with any knowledge on the topic knows to be false. In a column touting the virtues of health savings accounts, so that we can all do comparison shopping for our colonoscopies, Stephens pronounced Obamacare a failure.
He notes the high rate increases in the last two years for insurance plans offered on the exchanges (ignoring the fact that the costs were originally below projections, so that premiums are now roughly in line with the projections from before the plan was passed). He then tells readers:
"Same deal for employer-sponsored plans. 'While Sen. Obama promised during his campaign in 2008 that the average family would see health insurance premiums drop by $2,500 per year, the average family premium for employer-sponsored coverage has risen by $3,671,' noted Maureen Buff and Timothy Terrell in the Journal of American Physicians and Surgeons. That was back in 2014, and premiums continue to rise."
Okay Obama's $2,500 drop in premium number was relative to a growing baseline. This was completely obvious at the time and was apparent to anyone who spend two seconds looking at the projections. Health care costs had been rising 6 to 7 percent annually for decades. Obama was not saying that his plan would reverse this pattern and actually cause costs to decline. He was talking about costs relative to the baseline projection of growth. (Costs actually have dropped relative to baseline projections even more than Obama projected, although it is debatable how much the Affordable Care Act is responsible.)
Everyone following the debate fully understood that Obama was making his claim relative to a baseline of rising cost growth, since it would have been completely absurd for him to claim he would actually cause premiums to fall in nominal terms. If Stephens is unaware of this fact, his level of ignorance on health care is truly astounding. Alternatively he could just be lying, deliberately misrepresenting Obama's promises to score a cheap political point.
Either way, it doesn't speak well for Stephens. I know the NYT has an affirmative action policy for conservatives, but this is ridiculous.Add a comment
There has probably never been a National Bureau of Economic Research working paper that produced as much glee in the media as last week's report showing that Seattle's minimum wage law may have led to a net loss in wages for low wage workers. According to the analysis, there was a reduction in average hours worked among those in the low wage labor market that more than offset the gain in wages. The result was a net loss in wages for exactly the group of people the law was intended to benefit.
This finding was quickly picked up in every major news outlet. While some, notably the New York Times, reported the finding with appropriate cautions, others (e.g. here, here, here, here, and here) were nearly gleeful at the idea that workers in Seattle were losing their jobs. Most of the reporting ignored the fact that the same week a team of researchers from Berkeley produced an analysis using a very similar methodology that found no statistically significant impact on employment.
There are important differences in the studies. The Berkeley study follows much prior research and only looks at the restaurant industry, a major employer of low wage workers. The University of Washington NBER paper looked at all workers getting paid less than $19 an hour. It also had two additional quarters of data. However, the Washington study also excluded the roughly 40 percent of the workforce that worked at multi-site employers (think Starbucks and McDonald's).
In other words, it it not obvious that the Washington study is the "better" analysis. The Berkeley team has produced much of the cutting edge research on the minimum wage over the last fifteen years. I doubt that many of the reporters touting the Washington study would be able to explain why it is a better analysis of the impact of Seattle's minimum wage hikes.Add a comment
That seems to be the case in an article on the recent drop in fertility rates that warns:
"If the trend (lower fertility) continues — and experts disagree on whether it will — the country could face economic and cultural turmoil."
That is more than a bit hard to see. If we do see a sustained drop in the fertility rate it will mean that eventually we will have higher rates of retirees to workers, assume no offsetting increase in immigration or an increase in labor force participation by either the prime-age population (ages 25 to 54) or older potential workers.
However, the economic implications of this rise in the ratio of retirees to workers are very modest. According to the Social Security Trustees Report, the impact of a sustained fall in the fertility rate would increase Social Security's projected shortfall over the next 75 years by an amount equal to 0.36 percent of payroll over this period. This is equal roughly 0.12 percent of projected GDP. There are other costs, such as Medicare, that would also increase with a larger ratio of retirees to workers; however, this would be offset in part by reduced spending on education and health care for the young.
By comparison, the increase in military spending associated with the wars in Iraq and Afghanistan was close to 2.0 percentage points of GDP. While these wars have prompted some opposition and protest, it has not led to economic turmoil. It is difficult to see why an increase in spending that is perhaps one-tenth as large would be expected to cause economic turmoil.
It is also worth noting that plausible changes in productivity growth swamp the impact of even large changes in fertility rates. If the country, had sustained the rate of productivity growth it experienced from 1995 to 2005 (also from 1947 to 1973) over the last twelve years, it would have the equivalent effect on workers' take-home pay as reducing the Social Security tax by 10 percentage points. If the rate of productivity can be boosted by just 0.1 percentage point, it would swamp the long-term impact of a lower fertility rate on workers' living standards. And, this is before even taking into the account the benefits of reduced stress on infrastructure and the environment.
In short, we should worry if people don't have children because they don't think they can afford them. We need not worry about running out of people.Add a comment
Just kidding, we know that newspapers don't make a point of running stories on incompetent bosses. Instead we have Obama administration car czar Steve Rattner telling us in a NYT column that manufacturers are not hiring because they can't get qualified workers. His evidence is data from the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey which shows a rise in job openings reported in manufacturing, but little increase in hires. Rattner says that this is because firms can't find qualified workers.
The problem with this explanation is that employers are not acting like they have a shortage of workers. As Rattner himself points out, the real hourly wage in manufacturing has risen by just 0.8 percent over the last decade. (This is cumulative, not an annual rate.) If firms really were trying to hire people but couldn't find qualified workers then they would be offering higher wages to attract workers from their competitors. We don't see this happening.
The other way that employers would respond to a lack of qualified workers is by working their existing workforce more hours. This doesn't seem to be happening either as the graph below shows.
Average Weekly Hours: Manufacturing Workers
Source: Bureau of Labor Statistics.
While average hours are high, they are no higher than they were in 2013 and down from the peaks hit in 2014, periods when the labor market was considerably weaker by all measures. This picture is not consistent with an industry desperate for qualified workers.
Another item that needs correcting in Rattner's piece is the claim that college-educated workers are doing well in the current economy. His column includes a chart that shows the wages of college-educated workers (including those with advanced degrees) have increased by 10.7 percent since 1979. (This is actually a growth rate of just 0.3 percent annually — not very impressive.) Since 2000, the median wage of workers with just a college degree has fallen by 1.5 percent. So, even college grads have not shared in the gains from growth in this century.Add a comment
I suppose that is their natural state. After all, they completely missed the housing bubble and then somehow expected the economy would bounce right back even though there was nothing to replace the demand generated by the bubble. Anyhow, at least according to this NYT article, they are very confused about the course of technology.
There are two big issues that the piece implies the bankers are missing. First, contrary to the concern of massive job displacement by robots, productivity growth has actually been very slow in recent years. It has averaged just over 1.0 percent annually over the last decade. This compares to a 3.0 percent annual rate in the long post-war Golden Age from 1947 to 1973 and again from 1995 to 2005.
It is also worth noting that these periods of rapid job displacement due to technology were also periods of low unemployment and rapid wage growth. (The 2001 recession, following the collapse of the stock bubble, put an end to the late 1990s wage growth.) There is no reason to blame weak wage growth and high unemployment on rapid productivity growth. If there is a weak labor market the problem is with macroeconomic policy that is leading to insufficient demand. (Bizarrely, this piece never once mentions trade deficits, which are a major drain on demand.)
The other big issue missing here is attributing distribution effects to technology. The ownership of technology is determined by policy, specifically rules on patents and copyrights, it is not determined by the technology. If we are seeing an upward redistribution associated with trends in technology, it would indicate that patents and copyrights are too long and too strong.
That would be a strong argument for making these forms of protection shorter and weaker (policy has been going in the other direction). There is no indication this topic even came up at the meetings. This suggests the central bankers are once again very confused about the economy.Add a comment
Thomas Friedman, who is legendary for his boldly stated wrong assertions, got into the game again making absurd claims about the Trans-Pacific Partnership (TPP) and the great loss the U.S. suffers from it going down. Friedman tells readers:
"It was not only the largest free-trade agreement in history, it was the best ever for U.S. workers, closing loopholes Nafta had left open. TPP included restrictions on foreign state-owned enterprises that dumped subsidized products into our markets, intellectual property protections for rising U.S. technologies — like free access for all cloud computing services — but also anti-human-trafficking provisions that prohibited turning guest workers into slave labor, a ban on trafficking in endangered wildlife parts, a requirement that signatories permit their workers to form independent trade unions to collectively bargain and the elimination of all child labor practices — all to level the playing field with American workers."
This is of course wrong. First, and most importantly, all the provisions on items like human trafficking, child labor, and trading in endangered wildlife depended on action by the administration. In other words, if the TPP had been approved by Congress last year we would be dependent on the Trump administration to enforce these parts of the agreement. Even the most egregious violations could go completely unsanctioned, if the Trump administration opted not to press them. Given the past history with both Democratic and Republican administrations, this would be a very safe bet.
In contrast, the provisions on items like violations of the patent and copyright provisions or the investment rules can be directly enforced by the companies affected. The TPP created a special extra-judicial process, the investor-state dispute settlement system, which would determine if an investor's rights under the agreement had been violated.Add a comment
Realizing the unpopularity of their health care plan, the Republicans are now playing games with the word "cut," to deny that their proposal would lead to large cuts in Medicaid spending over the next decade and beyond. The NYT ran a piece that ostensibly was intended to clarify the issue, but likely left readers more confused than they had been previously. The piece tells readers:
"At issue is whether the funding changes should be compared to the increases that would occur under current law, the Affordable Care Act, or whether the focus should be on the modest annual increases that would happen under the Republican bill.
"The White House says that Republicans are being victimized by a broken budgeting system that unfairly casts their fiscal restraint as callous cutting."
The baseline for spending against which the Republican proposal is being measured is a baseline that assumes current levels of services and eligibility requirements are left in place. This can perhaps best be explained by a comparison with Social Security.
Under the law, workers are entitled to Social Security benefits based on their work history and their age. With a growing population of people receiving Social Security benefits and new retirees typically collecting higher benefits than earlier retirees (due to higher average wages), and an inflation adjustment for those already receiving Social Security, benefit payments rise each year.
By standard budgetary practice, if the Republicans were to reduce the benefit schedule or not give the annual cost of living adjustment, it would be called a "cut" in benefits even if total Social Security payments stayed the same or rose somewhat. It is a cut because people would be getting less than is promised under the current law.
In the case of Medicaid, the Congressional Budget Office (CBO) uses the best information available to project the eligible population and also the cost of providing services to this population. This is the baseline that the Republicans are working from with their health care plan. They are proposing to spend roughly $800 billion less over the 10-year budget horizon than the baseline spending level projected by CBO. This is equal to approximately 17.0 percent of projected spending over this period and 25.6 percent of spending in 2026, the last year for which CBO made projections for the Republican plan. (The reduction from baseline is even larger after the end of the 10-year horizon.)
This means that unless the Republicans have some way to reduce the cost of services that they have not told anyone about (e.g. paying drug companies and medical equipment companies less for their products or doctors less for their services), Medicaid will not be able to provide the services offered under current law. Given the size of the reductions relative to the baseline, by year 10 this will likely mean hugely reducing the number of people getting coverage and quite likely throwing people out of nursing homes.
This is the meaning of "cuts." This is, in fact, a rather simple point and not a question of semantics. The Republicans do not have a plan for Medicaid to provide the level of services promised under current law, they are proposing to radically reduce the level of services. This is not ambiguous, just like it is not ambiguous that President Obama was not born in Kenya.Add a comment
The New York Times reported this afternoon that Senate Republicans have now altered their health care bill to include a provision that would penalize people who opt not to buy insurance. According to the article, people who go more than two months without insurance will have to wait six months for a new policy to take effect after they buy it.
This is an entirely reasonable change since it prevents the obvious problem that many people would have opted to game the system without a provision like this. As I and others pointed out, it would be a pretty low-risk proposition for healthy people, especially older ones who faced high premiums, to go without insurance and then buy insurance only if they developed a serious illness.
This would likely make the system unstable since it would mean that the pool of people in the system were less healthy than average, and therefore have higher health care expenses. This would raise costs and premium prices, leading more people to drop out. Eventually, only very unhealthy people would look to buy insurance, which would be extremely expensive.
For this reason, the penalty makes sense. What doesn't make sense is that the Republicans are just adding the provision now. This problem of adverse selection (only less healthy people buy insurance) is not a new discovery. It has been known to people writing about insurance for more than half a century. So how could the Republicans spend all this time hashing out a bill and only now realize that they have a problem?
This is yet another piece of evidence (as if more was needed) that this is not an effort to provide better insurance to the public, it is about giving tax cuts to rich people. The insurance aspect is a sidebar, sort of like when you buy cheese at the store and you need it wrapped in something. You don't really care what the cheese is wrapped in, you care about the cheese.
In the same vein, the Republicans don't really care what the insurance looks like, they care about the tax cuts for rich people. If they did care about the insurance, the penalty for going uninsured would not be a last minute addition.Add a comment
The NYT gave us yet another piece telling us that Donald Trump is right about his growth projections and that the Congressional Budget Office is wrong. The piece, by Kai-Fu Lee, the chairman and chief executive of Sinovation Ventures, a venture capital firm, and the president of its Artificial Intelligence Institute, tells readers that we are about to see mass displacement of jobs due to the spread of artificial intelligence (AI).
This mass displacement has another name, it's called "productivity growth." In other words, Lee is predicting a massive boom in productivity growth. If we get a massive boom in productivity growth, it will mean a huge rise in the rate of GDP growth.
While Lee doesn't put a number on the rate of productivity growth, it is clear he thinks it is faster than anything we have seen in the past. In the long post-war Golden Age from 1947 to 1973, and again from 1995 to 2005, productivity growth averaged 3.0 percent annually. (This was a period of rapid wage growth and low unemployment.) Since Lee apparently thinks the growth will be even faster with his job-killing AI story, we should probably envision productivity growth even faster than this 3.0 percent rate.
In that case, Trump and his crew are probably being too pessimistic projecting GDP growth of just 3.0 percent over the next decade. After all, GDP growth is just the sum of productivity growth and labor force growth. Even with the retirement of the baby boomers we are still expecting labor force growth in the range of 0.5–0.7 percent annually. So, if Mr. Lee is anywhere close to being right about his projections of the future, then the Trump team is being too pessimistic.
We can leave the resolution of this debate over the future for other occasions, but there is one point that is clear. If anyone thinks that Mr. Lee's view should be treated seriously, they better also take Trump's growth projections seriously. Anyone who thinks this NYT column is plausible but that Trump is just inventing numbers has problems with simple arithmetic and should be laughed out of any serious policy discussion.
There is another important point that Lee misses in his column. He argues that AI will transfer wealth from the rest of us to the people who own AI. This is sloppy thinking. One gets to "own" AI from patent and/or copyright monopolies. These come from governments, not technology. If the ownership of AI is leading to an upward redistribution of income the most obvious way to deal with it is to reduce the length and strength of these monopolies.
This basic point, that policies designed to give incentives to innovate can be altered should be obvious to anyone involved in this debate. But, as we all know, the economy is suffering from a severe skills shortage.Add a comment
The NYT had a piece on how many smaller cities that have already lost factory jobs are no seeing a loss of jobs in retail due to the growth of online shopping.The article provides an interesting picture of some of the cities in industrial Midwest and Northeast that have already lost many of their manufacturing jobs and are now seeing major retailers shut their doors.
What is striking is that the piece doesn't present any economists saying how this is good news, as is usually the case on pieces with trade, since the fact that people can buy items online for less money means that they will have more money left in their pockets to buy other things. In fact, there is a better case for this story with retail than with trade since the on-line retailers generally are still in the United States, which means that the money will largely be re-spent here. By contrast, much of the money spent on imports is not spent in the United States.
It is also worth noting that the rate of job displacement due to technology has actually been extremely slow (as in the opposite of fast) over the last decade as productivity growth has fallen to its slowest pace on record. This doesn't mean that people are not losing jobs due to technology, but the rate is slower than normal, not faster than normal.
There could be a problem of inadequate aggregate demand, but in that case, the Federal Reserve Board should not be raising interest rates. The purpose of higher interest rates is to slow the economy and reduce the rate of job creation. The Fed raises interest rates because it considers aggregate demand to be too high, not too low.Add a comment
The Washington Post had an interesting column by a doctor that discussed the difficulties his diabetic patients face dealing with the high cost of insulin. While the doctor, David Trigdell, does call for measures by the government to reduce the price that patients and insurers have to pay for the drug, he doesn't ask the most basic questions about why the price is high in the first place.
This gets back to how the government finances medical research. To a large extent it relies on patent monopolies, and other types of monopoly rights, to pay for drug research. These monopolies are the reason that insulin is expensive. If it were sold in a free market, insulin would be cheap, and Dr. Trigdell's patients would have little trouble covering the cost.
Of course, it is necessary to pay for the research, but there are other mechanisms. The most obvious would be for the government to pay for the research upfront as it is doing now in the case of the development of a Zika vaccine by Sanofi. (Unfortunately, in this case, the government is both paying for the research and planning to give Sanofi a monopoly on its distribution.)
If drug research was paid for upfront it would have the benefit that all research findings would be fully open (that could be a condition of the funding) and there would be no reason for unnecessary duplicative research, as no one would have the incentive to try to innovate around a patent just to develop a copycat drug. I discuss this in chapter 5 of Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer (it's free).Add a comment
The financial sector is chock full of people with no useful skills. This is why the government has to devise make-work projects like collecting back taxes owed to the I.R.S. for these people to do. As the NYT reports, this practice consistently leads to abuses by the collectors and often ends up losing the government money. But hey, at least it creates some good-paying jobs in these companies and a nice return to their shareholders.Add a comment
The Senate health care plan hugely increases the cost of insurance for older pre-Medicare age people compared to young people, and it eliminates the penalty for not buying insurance, so naturally the NYT tells us:
"That could inadvertently discourage the youngest and healthiest people from buying insurance, leaving a higher percentage of sicker people with expensive treatments on the exchanges, driving up insurers’ costs."
If you raise the cost of insurance for older people relative to younger people, then we expect it to disproportionately reduce the number of older healthy people who buy insurance, not young healthy people.Add a comment
As we all know, driving west in New Jersey is unsustainable. After all, if you keep going west, you will eventually end up in the Pacific Ocean. That's pretty damn unsustainable. It would have been helpful if the Washington Post had clarified for readers that when the Republican health care experts cited in this piece called Medicaid "unsustainable" they meant it in the same way.
The Republicans were celebrating the prospect of the Senate's health care reform bill which includes large tax cuts for rich people, which are coupled with large cuts to Medicaid. The economists justified these cuts by proclaiming Medicaid to be unsustainable.
This is true in the sense that spending is growing faster than the economy. Of course the same would be true of any category of spending that grows faster than the economy, like federal payments for various types of social media and any other category that might be seeing rapid growth for a period of time. If we projected out a rapid rate of growth for the indefinite future, it will eventually cost more than the whole economy. It's just like driving into the Pacific Ocean.
As a practical matter there is no problem with covering the cost of Medicaid for moderate-income people, the elderly, and the disabled far into the future, if we don't give big tax cuts to Donald Trump and his rich friends. We can and should look to get the costs of the program down by bringing what we pay for drugs, medical equipment, and doctors in line with other wealthy countries. Of course, this is a route that Donald Trump and his rich friends probably do not want us to take, nor does the Washington Post.Add a comment
That's the question millions are asking as the Senate plows ahead with its plan to repeal and replace Obamacare. Okay, I don't think anyone is actually asking this question, but they should be if they are trying to take the Senate plan at face value.
As some folks may remember, we had a great wave of hysteria around the importance of the "young invincibles" for Obamacare. These were young healthy people who didn't think they would ever need insurance. The concern was that they would not sign up for the plan and instead pay the penalties, depriving the system of their premiums. Because the ratio of insurance premiums for older to younger people was set slightly to the disadvantage of the young (compared with an actuarially fair rate), the loss of these young healthy people would worsen the program's finances.
In fact, there was far less to the young invincibles story than was claimed in the hype. Kaiser did a simple analysis showing that even an extreme skewing of enrollment towards the old made little difference to the finances of the program. The basic point is that because the premiums of young people are low, it doesn't make much difference whether they sign up or not.Add a comment
That's not exactly what Edsall said in his NYT column, but it is pretty damn close. The theme of Edsall's piece is that in the United States, as in other wealthy countries, the main political divide is between those who support and those who oppose globalization:
"...if we define globalization as receptivity to open borders, the expansion of local and nationalistic perspectives and support for a less rigid social order and for liberal cultural, immigration and trade policies."
The elites in the United States who claim support of globalization actually do not favor open borders and liberal trade policies, although they dishonestly claim this position. The "globalizers" strongly support protectionist measures that benefit people like them.
First and foremost, they favor longer and stronger patent and copyright protection. These forms of protection (sorry folks, they are still protectionism even if you like them) are enormously costly. They often raise the price of the protected items by hundreds or even thousands of times the free market price.
This is why prescription drugs are expensive. New cancer drugs, which often sell for hundreds of thousands of dollars for a year's treatment, would typically sell for a few hundred dollars in the absence of patent and related protections. The United States will spend more than $440 billion this year on prescription drugs. These drugs would likely cost less than $80 billion in a free market. The difference of $360 billion is roughly 1.9 percent of GDP. If we add in the cost of protectionism in medical equipment, software, and other areas it would likely be more than twice as much.
In addition, while trade policy has been deliberately designed to put manufacturing workers in direct competition with low-paid workers throughout the developing world, which puts downward pressure on the wages of less-educated workers more generally (this is the theory, not an accidental outcome), it has largely left in place the protectionist barriers which benefit doctors, dentists and other highly paid professionals. (Foreign-trained doctors cannot practice in the United States unless they complete a U.S. residency program. Dentists must graduate from a U.S. [or Canadian] dental school. As a result, these professionals get paid roughly twice as much as their counterparts in other wealthy countries.)
When one party openly supports policies that are designed to redistribute upward and lies about the redistributive features of its policies, it is not surprising that most working people will not be inclined to vote for them. (Yep, this is the point of my book Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer [it's free.])Add a comment
The NYT ran yet another piece highlighting the "crisis" in public pensions. This time the story is that pensions are in worse shape in New York City than they were in 1975 when the city faced bankruptcy. The way it gets this conclusion is by showing that pension payments and liabilities are larger, even after adjusting for inflation, than they were in the mid-1970s.
While this is true, it ignores the fact that New York's gross domestic product is close to three times as large today as it was in the mid-1970s. This means that the $5 billion contribution to pensions that the article shows was made in the mid-1970s (in 2017 dollars) was a considerably larger burden on the city's economy at the time than the projected payment of $10 billion in 2020.
The article points out that the unfunded liability of the city's pensions, as conventionally measured, is $65 billion. While this sounds ominous, the discounted value of the city's GDP over the next three decades will be more than $20 trillion, making the liability equal to roughly 0.3 percent of projected GDP. That is far from trivial, but also not an unbearable burden if the city's economy remains healthy.
There is one very important point in this article. It notes a big expansion of pensions in 2000 at the peak of the stock bubble. Many other public pension funds also raised their commitments as a result of this bubble, with the expectation that markets would give their historic rates of return even though price-to-earnings ratios were at unprecedented highs.
Other governments stopped contributing to their pensions during this period with the idea that the market would contribute for them. This led to a situation where they suddenly were forced to ramp up contributions sharply when the bubble burst and threw the economy into recession in 2001. Some, like Chicago under Mayor Richard Daley, found this shift too difficult to manage and simply allowed the unfunded liability to grow.
In short, the stock bubble created serious problems for public pension funds. It also created problems for tens of millions of workers planning for retirement. This is worth noting because the conventional view among economists of the stock bubble is that it was just a lot of good fun with no major economic consequences.
This is close to mind-boggling. Many of the same economists who see the growing and bursting of a huge bubble as no big deal think all hell would break loose if the inflation rate were 3.0 percent instead of the 2.0 percent rate currently targeted by the Fed. There may be a world where this inconsistency makes sense, but it's not the one we live in.Add a comment
A column in the Wall Street Journal by Dana P. Goldman and Darius N. Lakdawalla presents a case for high drug prices by making an analogy to the salaries of major league baseball players. They ask what would happen if the average pay of major league players was cut from $4 million to $2 million. They hypothesize that the current crew of major leaguers would continue to play, but that young people might instead opt for different careers, leaving us with a less talented group of baseball players. Their analogy to the drug market is that we would see fewer drugs developed, and therefore we would end up worse off as a result of paying less for drugs.
This analogy is useful because it is a great way to demonstrate some serious wrong-headed thinking. It also leads those of us who had the privilege of seeing players like Bob Gibson, Sandy Koufax, Henry Aaron, and Willie Mays in their primes to wonder if there somehow would have been better players 50 years ago if the pay back then was at current levels.
But the issue is not just how much we should pay for developing drugs, but how we should pay. Suppose that we paid fire fighters at the point where they came to the fire. They would assess the situation and make an offer to put out the fire and save the lives of those who are endangered. We could haggle if we want. Sometimes we might get the price down a bit and in some occasions a competing crew of firefighters may show up and offer some competition. Most of us would probably pay whatever the firefighters asked to rescue our family members.Add a comment
Apparently the dislike at the NYT is so intense that they couldn't restrict it to the opinion pages. In an article on French President Emmanuel Macron's plans for changing France's labor market regulations, it referred to the current labor law as the, "rigid and job-killing labor code."
It is not at all clear that France's labor protections have a major impact on unemployment in the country. A cross-country analysis found no effect of employment regulations on unemployment. The more obvious cause of high French unemployment is the lack of demand in the economy which results from both Germany's large trade surplus and its insistence on imposing austerity on France and other euro zone countries. The piece forgot to mention this major aspect of economic policy.Add a comment
Donald Trump's economic team has been widely ridiculed for its projection that economic growth will average 3.0 percent annually over the next decade. However, a Washington Post article implies that Trump's team may actually have been overly pessimistic. The article discusses the possibility that robots will be used to replace cashiers at Whole Foods, now that it has been purchased by Amazon.
The piece also raises the concern that automation will displace large numbers of workers throughout the economy over the next two decades.
"A 2013 study from Oxford University predicted that 47 percent of jobs in the United States could be performed by machines over the next two decades, and cashier roles carry an especially heightened risk."
This pace of automation (losing 47 percent of jobs over two decades) is consistent with a 3.0 percent rate of productivity growth, roughly the same rate as the U.S. experienced in the long Golden Age from 1947 to 1973 and again from 1995 to 2005. By contrast, the Congressional Budget Office is projecting productivity growth of roughly 1.5 percent. If the Oxford study's more optimistic assessment proves correct, with labor force growth in the range of 0.5 to 0.7 percent annually, GDP growth would be in the range of 3.5 to 3.7 percent. This far exceeds the Trump administration's 3.0 percent projection.
Contrary to what is implied in this article, rapid productivity growth should lead to rapid wage growth and low unemployment, as was the case through most of the prior two periods. Of course, this assumes competent management of economic policy and there is a serious problem with being able to find qualified economists, which is why the people in charge of policy completely missed the housing bubble.Add a comment
David Callahan had an interesting NYT column on the philanthropical efforts of the latest cohort of the newly rich. The piece makes the important point that people like Bill Gates, the Walton family, and Mark Zuckerberg often use their givings to push their specific political agenda. As Callahan points out, these contributions involve a large amount of taxpayer dollars, these very rich people are getting their taxes reduced by roughly 40 cents for every dollar they give. This means, in effect, that Gates, the Waltons, Zuckerberg and the rest are effectively getting taxpayers to put up a large amount of money to support their political agenda in important areas of public policy.
There are a couple of additional points worth adding on this issue. First, these charitable efforts likely have advanced these billionaires in their efforts to get ever richer. This is especially likely to be the case with Bill Gates where efforts to establish himself as a great humanitarian likely discouraged efforts to take more actions against his company's near monopoly in the computer operating system market. (Also, a program officer in the Gates Foundation once once told me that they would not support any work questioning the usefulness of patent support for drug research because of Gates' dependence on intellectual property protections.)
The other point is that the foundations themselves help to contribute to inequality with the outsized paychecks given to their top executives. It is common for these people to get salaries at or above $1 million a year. (This is discussed in chapter 6 of Riggged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer [it's free.])
It would be possible to require that philanthropies limit pay in order to qualify for tax-deductible status. The president of the United States earns $400,000 a year. (This doesn't count the special deals for his businesses that Donald Trump gets from those seeking favors.) Many highly talented people compete vigorously for this job. Charitable foundations should be able to find qualified people for the same pay. If not, then they are probably not the sort of organization that deserves the public's support.
Limiting pay for the top executives at institutions receiving taxpayer subsidies, which would include presidents of universities and non-profit hospitals, should help put downward pressure for pay at the top more generally, leaving more money for everyone else.Add a comment