Beat the Press

Beat the press por Dean Baker

Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press. Please also consider supporting the blog on Patreon.

It’s good to see the New York Times making the case for higher wages in an editorial. Unfortunately, they get much of the story confused.

First off, the essence of the case is that higher wages will lead to more consumption, which will spur growth. This is true, but higher pay is not the only way to generate more demand. We also get more demand with larger budget deficits, lower interest rates, and a smaller trade deficit.

But that is the less important problem with the piece. The bigger problem is the assertion that the failure of pay to keep pace with productivity growth over the last four decades is due to higher profits.

“Wages are influenced by a tug of war between employers and workers, and employers have been winning. One clear piece of evidence is the yawning divergence between productivity growth and wage growth since roughly 1970. Productivity has more than doubled; wages have lagged far behind.”

In fact, a rising profit share only explains about 10 percent of the gap between productivity growth and the median wage since 1979. The overwhelming majority of the gap is explained by rising high end wages — the money earned by CEOs and other top execs, high pay in the financial sector, the earnings of some workers in STEM areas, and high-end professionals, like doctors and dentists.

For some reason, the NYT never wants to talk about the laws and structures that allow for the explosion of pay at the top. This would include factors like our corrupt corporate governance structure, that essentially lets CEOs determine their own pay, a bloated financial sector that uses its political power to steer ever more money in its direction, longer and stronger patent and copyright monopolies, and protectionist barriers that largely shield our most highly paid professionals from both foreign and domestic competition. (Yes, this is all covered in Rigged [it’s free].)

Readers can speculate on why these topics are almost entirely forbidden at the NYT, but if we want to be serious about addressing low wages, we have to look where the money is, and most of it is not with corporate profits. And, just to remind people why this matters, the minimum wage would be $24 an hour today if it had kept pace with productivity growth since 1968.

It’s good to see the New York Times making the case for higher wages in an editorial. Unfortunately, they get much of the story confused.

First off, the essence of the case is that higher wages will lead to more consumption, which will spur growth. This is true, but higher pay is not the only way to generate more demand. We also get more demand with larger budget deficits, lower interest rates, and a smaller trade deficit.

But that is the less important problem with the piece. The bigger problem is the assertion that the failure of pay to keep pace with productivity growth over the last four decades is due to higher profits.

“Wages are influenced by a tug of war between employers and workers, and employers have been winning. One clear piece of evidence is the yawning divergence between productivity growth and wage growth since roughly 1970. Productivity has more than doubled; wages have lagged far behind.”

In fact, a rising profit share only explains about 10 percent of the gap between productivity growth and the median wage since 1979. The overwhelming majority of the gap is explained by rising high end wages — the money earned by CEOs and other top execs, high pay in the financial sector, the earnings of some workers in STEM areas, and high-end professionals, like doctors and dentists.

For some reason, the NYT never wants to talk about the laws and structures that allow for the explosion of pay at the top. This would include factors like our corrupt corporate governance structure, that essentially lets CEOs determine their own pay, a bloated financial sector that uses its political power to steer ever more money in its direction, longer and stronger patent and copyright monopolies, and protectionist barriers that largely shield our most highly paid professionals from both foreign and domestic competition. (Yes, this is all covered in Rigged [it’s free].)

Readers can speculate on why these topics are almost entirely forbidden at the NYT, but if we want to be serious about addressing low wages, we have to look where the money is, and most of it is not with corporate profits. And, just to remind people why this matters, the minimum wage would be $24 an hour today if it had kept pace with productivity growth since 1968.

We know that the economy is likely to get worse in the immediate future as the pandemic is spreading out of control in most parts of the country. However, the latest data on average weekly hours indicates we may be facing a longer term issue that has not generally been anticipated.

In a normal recession we see both a loss of jobs and a reduction in hours for those who managed to keep their jobs. The shortening of hours is a better way for employers to deal with reduced demand for labor, since it keeps workers attached to their jobs. (This is the argument for worksharing as an alternative to unemployment.) However, in this recession we are actually seeing some lengthening of the average workweek, not the usual shortening.

The chart below compares the change in the average workweek from 2007 to 2009 and from 2019 to 2020. For 2020, I have used the most recent two months’ data (September and October) to just take the period where the economy was operating at a level somewhat close to normal.

Source: Bureau of Labor Statistics and author’s calculations.

As can be seen, we see a very different picture in the pattern of work hours between the two recessions. The average workweek for all employees, fell by 1.5 percent in the Great Recession. By contrast, it increased by 1.2 percent from 2019 to September and October of this year. Some of this was undoubtedly due to composition effects. In the Great Recession, like most recessions, construction and manufacturing were the hardest hit sectors. These sectors have longer average hours than most, so job loss in these sectors will automatically reduce the length of the average workweek.

To control for this, I have compared the change in average hours in the two recessions for production and non-supervisory workers in several major sectors. Starting with the overall average, the difference is even sharper. The drop in the Great Recession was 2.0 percent, compared to a 1.6 percent increase in the Pandemic Recession.

Looking at major sectors, there was a drop in the length of the average workweek of 3.0 percent in manufacturing in the Great Recession compared to 1.0 percent in this recession. This may be explained largely by the fact that manufacturing was much harder hit in the Great Recession.

This explanation doesn’t fit for other sectors. Average hours fell by 1.1 percent in retail in the Great Recession, they rose by 2.2 percent in this recession. In the broad category of professional and business services, hours fell by 0.1 percent in the Great Recession, they have risen by 1.8 percent in this recession.

In education and health care, average hours fell by 1.0 percent in the Great Recession, they have risen by 1.9 percent in this recession. In the category leisure and hospitality, which includes hotels and restaurant workers, hours fell by 2.7 percent in the last recession, compared to a drop of just 0.2 percent in this recession. Hours in other services, which includes areas like laundry, gyms, and hair salons, fell by 1.4 percent in the Great Recession, they have risen by 1.9 percent in this recession.    

The rise in hours this recession is a really big deal because it accentuates the unemployment problem. To take the simple arithmetic, if the average workweek is 3 percent longer because of a change in employer behavior, with our pre-pandemic employment of roughly 150 million, that means 4.5 million fewer jobs given the same demand for labor. The real world will of course always be more complicated, but the basic story would apply. Longer hours means fewer jobs.

This is likely to matter not just for the immediate future when the pandemic limits employment in large areas of the economy, but also in the longer term, as we adjust to work structures that have been permanently altered as a result of the recession. As I have written elsewhere, the increase in telecommuting is likely to be enduring, meaning that there will be many fewer jobs serving a smaller population of commuters. 

One way of dealing with this reduction in employment opportunities is to have shorter workweeks/work years. Unfortunately, it seems we are now headed in the wrong direction.  

 

We know that the economy is likely to get worse in the immediate future as the pandemic is spreading out of control in most parts of the country. However, the latest data on average weekly hours indicates we may be facing a longer term issue that has not generally been anticipated.

In a normal recession we see both a loss of jobs and a reduction in hours for those who managed to keep their jobs. The shortening of hours is a better way for employers to deal with reduced demand for labor, since it keeps workers attached to their jobs. (This is the argument for worksharing as an alternative to unemployment.) However, in this recession we are actually seeing some lengthening of the average workweek, not the usual shortening.

The chart below compares the change in the average workweek from 2007 to 2009 and from 2019 to 2020. For 2020, I have used the most recent two months’ data (September and October) to just take the period where the economy was operating at a level somewhat close to normal.

Source: Bureau of Labor Statistics and author’s calculations.

As can be seen, we see a very different picture in the pattern of work hours between the two recessions. The average workweek for all employees, fell by 1.5 percent in the Great Recession. By contrast, it increased by 1.2 percent from 2019 to September and October of this year. Some of this was undoubtedly due to composition effects. In the Great Recession, like most recessions, construction and manufacturing were the hardest hit sectors. These sectors have longer average hours than most, so job loss in these sectors will automatically reduce the length of the average workweek.

To control for this, I have compared the change in average hours in the two recessions for production and non-supervisory workers in several major sectors. Starting with the overall average, the difference is even sharper. The drop in the Great Recession was 2.0 percent, compared to a 1.6 percent increase in the Pandemic Recession.

Looking at major sectors, there was a drop in the length of the average workweek of 3.0 percent in manufacturing in the Great Recession compared to 1.0 percent in this recession. This may be explained largely by the fact that manufacturing was much harder hit in the Great Recession.

This explanation doesn’t fit for other sectors. Average hours fell by 1.1 percent in retail in the Great Recession, they rose by 2.2 percent in this recession. In the broad category of professional and business services, hours fell by 0.1 percent in the Great Recession, they have risen by 1.8 percent in this recession.

In education and health care, average hours fell by 1.0 percent in the Great Recession, they have risen by 1.9 percent in this recession. In the category leisure and hospitality, which includes hotels and restaurant workers, hours fell by 2.7 percent in the last recession, compared to a drop of just 0.2 percent in this recession. Hours in other services, which includes areas like laundry, gyms, and hair salons, fell by 1.4 percent in the Great Recession, they have risen by 1.9 percent in this recession.    

The rise in hours this recession is a really big deal because it accentuates the unemployment problem. To take the simple arithmetic, if the average workweek is 3 percent longer because of a change in employer behavior, with our pre-pandemic employment of roughly 150 million, that means 4.5 million fewer jobs given the same demand for labor. The real world will of course always be more complicated, but the basic story would apply. Longer hours means fewer jobs.

This is likely to matter not just for the immediate future when the pandemic limits employment in large areas of the economy, but also in the longer term, as we adjust to work structures that have been permanently altered as a result of the recession. As I have written elsewhere, the increase in telecommuting is likely to be enduring, meaning that there will be many fewer jobs serving a smaller population of commuters. 

One way of dealing with this reduction in employment opportunities is to have shorter workweeks/work years. Unfortunately, it seems we are now headed in the wrong direction.  

 

After having Donald Trump in the White House for four years, we have gotten used to being lied to by people in high positions. Trump and his top staff have no qualms about telling us night is day, black is white, and two plus two equals five.

But we expect better from Team Reality: you know, the folks who write newspaper and magazine articles and opinion pieces, teach at major universities, and pass themselves off as great thinkers on the important issues of the day. But when it comes to discussions of the development of vaccines against the coronavirus, Team Reality is not doing much better than the Trumpers.

For the last couple of weeks, we have seen the celebration of reports of successful vaccine trials by Pfizer/BioNTech, Moderna, and Oxford-Astra Zeneca. Their success in such a short time-period is being treated as a remarkable achievement, given that it has often taken more than a decade to develop vaccines in the past. In the case of many diseases, most notably AIDS, we still don’t have an effective vaccine after many decades of trying. In this context, the seeming success of these vaccines is indeed an impressive achievement, as well as being very good news with the pandemic now exploding out of control in the United States.  

But the part of the story the celebrants seem determined to ignore is that the U.S. and European researchers do not appear to be the only ones with success in developing vaccines. China now has five vaccines in Phase 3 testing and Russia has one. Several of China’s vaccines have already been widely distributed in China, and to a lesser extent in other countries, under Emergency Use Authorizations.

It probably is not a good practice to widely distribute a vaccine before it has been properly tested, but you would think that the fact that China is already in a position to make a vaccine widely available would arouse some interest here. After all, we are now looking at close to 200,000 new infections a day and more than 2,000 deaths. If we had begun distributing a vaccine widely a month ago, these numbers would almost certainly look much better today and would presumably be getting lower rather than higher.

Incredibly, in spite of the enormous human and economic cost of the unchecked spread of the pandemic, literally no one in any major news outlet is asking the simple question of whether we could have benefited from access to China’s vaccines. There were a number of articles (here, here, here, and here) that reported on the claims of Sinopharm, one of the Chinese vaccine manufacturers, that it had already given its vaccine to nearly one million people. However, this was treated as an oddity, sort of like a four-legged chicken, not anything that could conceivably be relevant for slowing the spread of the pandemic here.

It might have been reasonable to ask a public health expert about whether the United States could have in the past, or even now, benefit from access to this or other Chinese vaccines. But that question did not get raised in any of these articles.

 

Can We Cooperate With China?

 

As my regular readers know, I have harped on this point at length, but I was moved to again push the issue by a piece in the New York Times by Fu Ying, a Chinese academic who has held high positions in its government. There were some items in this piece, which can be assumed to reflect the government’s position, that are troublesome, most importantly its claim that human rights abuses in China are not anyone else’s business. But apart from these items, there is one specific area that certainly deserves attention.  

Near the end of the column, Ms. Fu outlines areas for cooperation between the United States and China:

“Finally, a host of global issues call for close cooperation between China and the United States — the most urgent being the fight against the coronavirus pandemic.

“Scientists from both countries have a solid track record of professional cooperation in responding to past health crises, and they should be encouraged to maximize again the potential for exchange and joint research. Both China and America are resourceful in vaccine development. If they cooperate to make vaccines more affordable and accessible, the whole world will benefit.

“Climate change is another area that needs urgent attention. The world expects China and the United States to play a leading role, and the two countries have a lot to work on together.”

 

These points are very well-taken and we should hope the Biden administration tries to follow through with the Chinese government.  It was tragic that the United States and the rest of the world took a narrow nationalistic approach to develop treatments and vaccines. If we had continued the path of international collaboration that scientists were following in the early days of the pandemic, it is very possible that we would have had an effective vaccine already.

If we had followed a collaborative path, with no patent monopolies, all results would be fully public as soon as they are available. Anyone would be free to do their own tests and, they could mass produce any vaccine for which they had manufacturing capacity. This would mean, for example, that if the Sinopharm vaccine seemed promising, our researchers would be able to do whatever additional tests were needed to secure FDA approval. We would also be able to manufacture the vaccine as quickly as our factories were able to produce it, without seeking permission from Sinopharm or the Chinese government.

This is a good backdrop for possible paths of cooperation going forward. If we decided to cooperate with China on areas of common concern, such as health care and global warming, we could go this route of shared and open research.

This would mean that both countries would commit to certain levels of expenditure on research in specific areas, with all results being posted on the Internet in a timely manner and any patents being placed in the public domain so that everyone could freely use them. Presumably, we would want to bring other countries into such an agreement, so that they would both contribute to the research and share in the innovations that come from it. (I describe this sort of system in chapter 5 of Rigged [it’s free].)

This sort of system could be an enormous benefit to both China and the United States, and humanity in general. In medicine, the new vaccines and treatments developed could be sold as cheap generics from the day they were approved. Paying for drugs would no longer be a major problem in rich countries, and even in poor countries, securing necessary medicines could be accomplished with modest commitments of aid from rich country governments, international organizations, or private philanthropies.

In terms of dealing with global warming, new innovations in solar energy, wind energy, energy storage, and other areas would be quickly diffused throughout the world. The price would plummet as buyers need only pay the costs associated with manufacturing and installation, there would be no royalties going to companies with patent or copyright monopolies.

Perhaps best of all, we would be removing a large area of potential conflict between the United States and China. One of the items that always appears near the top of our list of complaints against China is the theft of intellectual property. However, if a large portion of our innovation is fully open, there is nothing to steal. We actually want China to install clean energy as quickly as possible, and they want the same from the United States. In this context, the greater and quicker diffusion of technology is truly a win-win.

We can also say the same about advances in health care. Whatever forms our competition with China might take, no reasonable person would want to see their population needlessly getting sick and dying. And, as we can clearly see now, we certainly share an interest in preventing the spread of infectious diseases anywhere in the world.

 

The End of the Thanksgiving Dream

Okay, this picture of international cooperation might be a very rosy scenario, but I have been around long enough to know it is not a realistic one. A big part of that story is that the industries that might see lower profits in this picture – the pharmaceutical industry, medical equipment manufacturers, wind and solar power companies – are powerful actors who will fight very hard to block any efforts to change the current system.

But the problem goes even deeper. There is an overwhelming consensus among elite types that free trade is the best way to go. We see endless articles and columns that warn us of the stupidity of tariffs on items like steel or cars. While the protection of these and other sectors may have allowed for higher pay for U.S. workers in years past, the story goes that they just have to adjust to a world where these industries will no longer be protected.

We could tell the exact same story about the pharmaceutical industry, medical equipment manufacturers, wind, and solar power companies. But the people who would see their incomes most at risk if we moved towards free trade in these areas (moving away from patent and copyright protection) would be highly educated professionals, largely people with college and advanced degrees in biology, chemistry, and engineering or physicians.  

These people are parents, siblings, or children of the people who write about economic policy and international relations. Policy types are much more likely to have very direct connections with the people who benefit from protections of intellectual property than the less-educated manufacturing workers who might benefit from tariffs on steel or cars.

Whether or not social position explains the differing attitudes towards the protection of manufactured goods and the protection of intellectual property is something I will leave to people to argue about over Thanksgiving dinner. But the fact remains, protection for manufactured goods is universally derided in outlets like the New York Times, Washington Post, and The Atlantic. Protectionism in the form of patent and copyright monopolies, which is hugely more costly, is never even raised as an issue. I’m open to other explanations for this difference in treatment.

Happy Thanksgiving Everyone (hopefully by Zoom).

 

 

After having Donald Trump in the White House for four years, we have gotten used to being lied to by people in high positions. Trump and his top staff have no qualms about telling us night is day, black is white, and two plus two equals five.

But we expect better from Team Reality: you know, the folks who write newspaper and magazine articles and opinion pieces, teach at major universities, and pass themselves off as great thinkers on the important issues of the day. But when it comes to discussions of the development of vaccines against the coronavirus, Team Reality is not doing much better than the Trumpers.

For the last couple of weeks, we have seen the celebration of reports of successful vaccine trials by Pfizer/BioNTech, Moderna, and Oxford-Astra Zeneca. Their success in such a short time-period is being treated as a remarkable achievement, given that it has often taken more than a decade to develop vaccines in the past. In the case of many diseases, most notably AIDS, we still don’t have an effective vaccine after many decades of trying. In this context, the seeming success of these vaccines is indeed an impressive achievement, as well as being very good news with the pandemic now exploding out of control in the United States.  

But the part of the story the celebrants seem determined to ignore is that the U.S. and European researchers do not appear to be the only ones with success in developing vaccines. China now has five vaccines in Phase 3 testing and Russia has one. Several of China’s vaccines have already been widely distributed in China, and to a lesser extent in other countries, under Emergency Use Authorizations.

It probably is not a good practice to widely distribute a vaccine before it has been properly tested, but you would think that the fact that China is already in a position to make a vaccine widely available would arouse some interest here. After all, we are now looking at close to 200,000 new infections a day and more than 2,000 deaths. If we had begun distributing a vaccine widely a month ago, these numbers would almost certainly look much better today and would presumably be getting lower rather than higher.

Incredibly, in spite of the enormous human and economic cost of the unchecked spread of the pandemic, literally no one in any major news outlet is asking the simple question of whether we could have benefited from access to China’s vaccines. There were a number of articles (here, here, here, and here) that reported on the claims of Sinopharm, one of the Chinese vaccine manufacturers, that it had already given its vaccine to nearly one million people. However, this was treated as an oddity, sort of like a four-legged chicken, not anything that could conceivably be relevant for slowing the spread of the pandemic here.

It might have been reasonable to ask a public health expert about whether the United States could have in the past, or even now, benefit from access to this or other Chinese vaccines. But that question did not get raised in any of these articles.

 

Can We Cooperate With China?

 

As my regular readers know, I have harped on this point at length, but I was moved to again push the issue by a piece in the New York Times by Fu Ying, a Chinese academic who has held high positions in its government. There were some items in this piece, which can be assumed to reflect the government’s position, that are troublesome, most importantly its claim that human rights abuses in China are not anyone else’s business. But apart from these items, there is one specific area that certainly deserves attention.  

Near the end of the column, Ms. Fu outlines areas for cooperation between the United States and China:

“Finally, a host of global issues call for close cooperation between China and the United States — the most urgent being the fight against the coronavirus pandemic.

“Scientists from both countries have a solid track record of professional cooperation in responding to past health crises, and they should be encouraged to maximize again the potential for exchange and joint research. Both China and America are resourceful in vaccine development. If they cooperate to make vaccines more affordable and accessible, the whole world will benefit.

“Climate change is another area that needs urgent attention. The world expects China and the United States to play a leading role, and the two countries have a lot to work on together.”

 

These points are very well-taken and we should hope the Biden administration tries to follow through with the Chinese government.  It was tragic that the United States and the rest of the world took a narrow nationalistic approach to develop treatments and vaccines. If we had continued the path of international collaboration that scientists were following in the early days of the pandemic, it is very possible that we would have had an effective vaccine already.

If we had followed a collaborative path, with no patent monopolies, all results would be fully public as soon as they are available. Anyone would be free to do their own tests and, they could mass produce any vaccine for which they had manufacturing capacity. This would mean, for example, that if the Sinopharm vaccine seemed promising, our researchers would be able to do whatever additional tests were needed to secure FDA approval. We would also be able to manufacture the vaccine as quickly as our factories were able to produce it, without seeking permission from Sinopharm or the Chinese government.

This is a good backdrop for possible paths of cooperation going forward. If we decided to cooperate with China on areas of common concern, such as health care and global warming, we could go this route of shared and open research.

This would mean that both countries would commit to certain levels of expenditure on research in specific areas, with all results being posted on the Internet in a timely manner and any patents being placed in the public domain so that everyone could freely use them. Presumably, we would want to bring other countries into such an agreement, so that they would both contribute to the research and share in the innovations that come from it. (I describe this sort of system in chapter 5 of Rigged [it’s free].)

This sort of system could be an enormous benefit to both China and the United States, and humanity in general. In medicine, the new vaccines and treatments developed could be sold as cheap generics from the day they were approved. Paying for drugs would no longer be a major problem in rich countries, and even in poor countries, securing necessary medicines could be accomplished with modest commitments of aid from rich country governments, international organizations, or private philanthropies.

In terms of dealing with global warming, new innovations in solar energy, wind energy, energy storage, and other areas would be quickly diffused throughout the world. The price would plummet as buyers need only pay the costs associated with manufacturing and installation, there would be no royalties going to companies with patent or copyright monopolies.

Perhaps best of all, we would be removing a large area of potential conflict between the United States and China. One of the items that always appears near the top of our list of complaints against China is the theft of intellectual property. However, if a large portion of our innovation is fully open, there is nothing to steal. We actually want China to install clean energy as quickly as possible, and they want the same from the United States. In this context, the greater and quicker diffusion of technology is truly a win-win.

We can also say the same about advances in health care. Whatever forms our competition with China might take, no reasonable person would want to see their population needlessly getting sick and dying. And, as we can clearly see now, we certainly share an interest in preventing the spread of infectious diseases anywhere in the world.

 

The End of the Thanksgiving Dream

Okay, this picture of international cooperation might be a very rosy scenario, but I have been around long enough to know it is not a realistic one. A big part of that story is that the industries that might see lower profits in this picture – the pharmaceutical industry, medical equipment manufacturers, wind and solar power companies – are powerful actors who will fight very hard to block any efforts to change the current system.

But the problem goes even deeper. There is an overwhelming consensus among elite types that free trade is the best way to go. We see endless articles and columns that warn us of the stupidity of tariffs on items like steel or cars. While the protection of these and other sectors may have allowed for higher pay for U.S. workers in years past, the story goes that they just have to adjust to a world where these industries will no longer be protected.

We could tell the exact same story about the pharmaceutical industry, medical equipment manufacturers, wind, and solar power companies. But the people who would see their incomes most at risk if we moved towards free trade in these areas (moving away from patent and copyright protection) would be highly educated professionals, largely people with college and advanced degrees in biology, chemistry, and engineering or physicians.  

These people are parents, siblings, or children of the people who write about economic policy and international relations. Policy types are much more likely to have very direct connections with the people who benefit from protections of intellectual property than the less-educated manufacturing workers who might benefit from tariffs on steel or cars.

Whether or not social position explains the differing attitudes towards the protection of manufactured goods and the protection of intellectual property is something I will leave to people to argue about over Thanksgiving dinner. But the fact remains, protection for manufactured goods is universally derided in outlets like the New York Times, Washington Post, and The Atlantic. Protectionism in the form of patent and copyright monopolies, which is hugely more costly, is never even raised as an issue. I’m open to other explanations for this difference in treatment.

Happy Thanksgiving Everyone (hopefully by Zoom).

 

 

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Like Donald Trump, Bill Gates apparently has a hard time understanding some things. The NYT had a major article on Gate’s role in developing vaccines against the coronavirus. At one point, the piece notes critics of Gates, who complain about how he has promoted patent monopoly financing of the development of vaccines and drugs, which allow these items to sell at prices that can be many thousand percent above the free market price.

The piece then presents Gates’ rejoinder:

“This capitalism thing — there actually are some domains that actually works in, …. North Korea doesn’t have that many vaccines, as far as we can tell.”

Gates apparently is not aware that the U.S. government paid for Moderna’s research and testing costs for its vaccines. While it also granted Moderna a patent monopoly on the vaccine (we can never give drug companies too much money) it is apparently possible to pay for research up front, and the patent monopolies are not necessary. This would allow for vaccines and drugs to be sold as cheap generics from the day they are approved by the FDA. It would also take away the incentive for drug companies to lie about the safety and effectiveness of their drugs, as they did in pushing opioids in the 1990s and 00s.

This would still very much be a capitalist system. The companies doing research would be making profits, just as military contractors like Lockheed make profits. They just would not be doing it through government-granted patent monopolies. It is perhaps understandable that someone who became one of the world’s richest people as a result of these monopolies (actually most copyright monopolies), may not want to envision a capitalism that uses more efficient incentive mechanisms, the rest of us should be able to think more clearly about such issues.

Like Donald Trump, Bill Gates apparently has a hard time understanding some things. The NYT had a major article on Gate’s role in developing vaccines against the coronavirus. At one point, the piece notes critics of Gates, who complain about how he has promoted patent monopoly financing of the development of vaccines and drugs, which allow these items to sell at prices that can be many thousand percent above the free market price.

The piece then presents Gates’ rejoinder:

“This capitalism thing — there actually are some domains that actually works in, …. North Korea doesn’t have that many vaccines, as far as we can tell.”

Gates apparently is not aware that the U.S. government paid for Moderna’s research and testing costs for its vaccines. While it also granted Moderna a patent monopoly on the vaccine (we can never give drug companies too much money) it is apparently possible to pay for research up front, and the patent monopolies are not necessary. This would allow for vaccines and drugs to be sold as cheap generics from the day they are approved by the FDA. It would also take away the incentive for drug companies to lie about the safety and effectiveness of their drugs, as they did in pushing opioids in the 1990s and 00s.

This would still very much be a capitalist system. The companies doing research would be making profits, just as military contractors like Lockheed make profits. They just would not be doing it through government-granted patent monopolies. It is perhaps understandable that someone who became one of the world’s richest people as a result of these monopolies (actually most copyright monopolies), may not want to envision a capitalism that uses more efficient incentive mechanisms, the rest of us should be able to think more clearly about such issues.

Margaret Sullivan, the Washington Post’s media columnist, had a good piece on how reporters can try to combat the nonsense that right-wing politicians and media sources are spewing. I would like to add one item to her list, writing big-budget numbers in ways that are meaningful to readers.

While this seems stupidly simple, for some reason reporters refuse to do it.  The point is that when readers see that we are spending $70 billion on food stamps or $15 billion on foreign aid (roughly last year’s numbers), they think that we are spending lots of money in these areas. These sums are hugely larger than what most of us will see in our lifetime. This leads people to believe that a large portion of their tax dollars are going for these purposes. (Yes, I know some people are racist and want to believe this because they hate people of color, but many people who are not racist, or at least not too racist to consider themselves liberal, also believe that a large share of their tax dollars go to these purposes.) 

Anyhow, if people were constantly told the $70 billion for food stamps is roughly 1.7 percent of the budget and the $15 billion for foreign aid is roughly 0.4 percent of the budget, it might be harder for them to believe that most of their hard-earned tax dollars were going to support these programs. That might make it a bit harder to rile up the hate for the liberal establishment, deep-state, etc.

I thought that there was going to be a change in the New York Times policy on this issue a number of years back, when Margaret Sullivan, who was then the paper’s Public Editor wrote a great piece largely making this point. She got the paper’s Washington editor at the time, David Leonhardt, to chime in, strongly agreeing on this point. To me, this was incredible news, since given the NYT’s standing as the country’s premier news outlet, if they adopted a standard of putting these big numbers in context, it is likely that other news outlets would quickly follow.

But, nothing changed at the NYT or anywhere else. I really can’t understand why. This is not a big time commitment. In the case of budget numbers, any budget reporter should have the size of the federal budget at their fingertips. It takes two seconds to do the division. (The numbers can also be expressed as per person or per household expenditures, which are also good ways to provide context.) But we still just get the really big numbers with no context.

Anyhow, if reporters are really interested in countering the nonsense thrown out by the right, writing big numbers in ways that actually provide information to their audience would be a big help. I have many other ways to improve reporting, as regular BTP readers know, but this is a very simple one that should not be controversial.

Margaret Sullivan, the Washington Post’s media columnist, had a good piece on how reporters can try to combat the nonsense that right-wing politicians and media sources are spewing. I would like to add one item to her list, writing big-budget numbers in ways that are meaningful to readers.

While this seems stupidly simple, for some reason reporters refuse to do it.  The point is that when readers see that we are spending $70 billion on food stamps or $15 billion on foreign aid (roughly last year’s numbers), they think that we are spending lots of money in these areas. These sums are hugely larger than what most of us will see in our lifetime. This leads people to believe that a large portion of their tax dollars are going for these purposes. (Yes, I know some people are racist and want to believe this because they hate people of color, but many people who are not racist, or at least not too racist to consider themselves liberal, also believe that a large share of their tax dollars go to these purposes.) 

Anyhow, if people were constantly told the $70 billion for food stamps is roughly 1.7 percent of the budget and the $15 billion for foreign aid is roughly 0.4 percent of the budget, it might be harder for them to believe that most of their hard-earned tax dollars were going to support these programs. That might make it a bit harder to rile up the hate for the liberal establishment, deep-state, etc.

I thought that there was going to be a change in the New York Times policy on this issue a number of years back, when Margaret Sullivan, who was then the paper’s Public Editor wrote a great piece largely making this point. She got the paper’s Washington editor at the time, David Leonhardt, to chime in, strongly agreeing on this point. To me, this was incredible news, since given the NYT’s standing as the country’s premier news outlet, if they adopted a standard of putting these big numbers in context, it is likely that other news outlets would quickly follow.

But, nothing changed at the NYT or anywhere else. I really can’t understand why. This is not a big time commitment. In the case of budget numbers, any budget reporter should have the size of the federal budget at their fingertips. It takes two seconds to do the division. (The numbers can also be expressed as per person or per household expenditures, which are also good ways to provide context.) But we still just get the really big numbers with no context.

Anyhow, if reporters are really interested in countering the nonsense thrown out by the right, writing big numbers in ways that actually provide information to their audience would be a big help. I have many other ways to improve reporting, as regular BTP readers know, but this is a very simple one that should not be controversial.

We know that Republican office holders are not allowed to say that Joe Biden won the election. Apparently, there is a similar ban in place for news outlets when it comes to the question of the United States collaborating with China, and other countries, in developing vaccines against the pandemic.

In recent days, there have been articles in several major news outlets about how China vaccinated close to 1 million people, under an Emergency Use Authorization, for vaccines that are currently in Phase 3 clinical testing (here, here, here, and here). While the large-scale distribution of vaccines, that have not completed testing for safety and effectiveness, is probably not a good public health practice, none of these pieces raised any questions about whether the United States and other countries, might have benefited from access to the Chinese vaccines.

It would not be reasonable to distribute Chinese vaccines here based on safety and effectiveness data that had not been thoroughly vetted by the Food and Drug Administration. But, if we had chosen to go a collaborative route in developing vaccines, we could have done our own tests, in addition to using data available from tests done by the Chinese manufacturers. 

And, the claims made in these pieces do suggest a high degree of effectiveness. For example, the CEO of Sinopharm, one of the leading vaccine manufacturers, claimed that they gave the vaccine to 81 of the 99  people in an overseas office of a major Chinese corporation. He said there was an outbreak in the office, and 10 of the 18 people who were not vaccinated became infected. None of the 81 people who were vaccinated became infected. This is of course not a carefully controlled clinical trial, and claims by the CEO of the company should be viewed with skepticism, but if anything close to this claim is true, it would suggest that we could have had an effective vaccine much sooner if we had chosen a route of international collaboration with China.

There are now many people in both political parties who want to have a new Cold War with China. There are certainly grounds to have complaints about China’s conduct, most importantly its abysmal human rights record and specifically its abuse of its Uighur population. But regardless of what we think of its government, it is not going away. 

For this reason, it makes sense to cooperate in areas of mutual benefit. Developing vaccines and treatments against the pandemic would have been an obvious example. Going forward, this applies to biomedical research more generally. It also applies to developing solar and other forms of clean energy in the effort to combat global warming. 

It is unfortunate that hostility to China, and the absurd “America First!” philosophy of the Trump administration, along with a quest for pharmaceutical industry profits, prevented this sort of collaboration on a vaccine. It would be interesting to speculate on how many lives here and elsewhere could have been saved if we adopted this approach. Unfortunately, reporters at major news outlets are not allowed to ask this sort of question.

We know that Republican office holders are not allowed to say that Joe Biden won the election. Apparently, there is a similar ban in place for news outlets when it comes to the question of the United States collaborating with China, and other countries, in developing vaccines against the pandemic.

In recent days, there have been articles in several major news outlets about how China vaccinated close to 1 million people, under an Emergency Use Authorization, for vaccines that are currently in Phase 3 clinical testing (here, here, here, and here). While the large-scale distribution of vaccines, that have not completed testing for safety and effectiveness, is probably not a good public health practice, none of these pieces raised any questions about whether the United States and other countries, might have benefited from access to the Chinese vaccines.

It would not be reasonable to distribute Chinese vaccines here based on safety and effectiveness data that had not been thoroughly vetted by the Food and Drug Administration. But, if we had chosen to go a collaborative route in developing vaccines, we could have done our own tests, in addition to using data available from tests done by the Chinese manufacturers. 

And, the claims made in these pieces do suggest a high degree of effectiveness. For example, the CEO of Sinopharm, one of the leading vaccine manufacturers, claimed that they gave the vaccine to 81 of the 99  people in an overseas office of a major Chinese corporation. He said there was an outbreak in the office, and 10 of the 18 people who were not vaccinated became infected. None of the 81 people who were vaccinated became infected. This is of course not a carefully controlled clinical trial, and claims by the CEO of the company should be viewed with skepticism, but if anything close to this claim is true, it would suggest that we could have had an effective vaccine much sooner if we had chosen a route of international collaboration with China.

There are now many people in both political parties who want to have a new Cold War with China. There are certainly grounds to have complaints about China’s conduct, most importantly its abysmal human rights record and specifically its abuse of its Uighur population. But regardless of what we think of its government, it is not going away. 

For this reason, it makes sense to cooperate in areas of mutual benefit. Developing vaccines and treatments against the pandemic would have been an obvious example. Going forward, this applies to biomedical research more generally. It also applies to developing solar and other forms of clean energy in the effort to combat global warming. 

It is unfortunate that hostility to China, and the absurd “America First!” philosophy of the Trump administration, along with a quest for pharmaceutical industry profits, prevented this sort of collaboration on a vaccine. It would be interesting to speculate on how many lives here and elsewhere could have been saved if we adopted this approach. Unfortunately, reporters at major news outlets are not allowed to ask this sort of question.

Last week, we got the very good news that preliminary results from its Phase 3 trial showed that Pfizer’s vaccine had an effectiveness rate of 92 percent. (We now have final results that put it at 95 percent.) This week, Moderna released results showing that its vaccine also has a 95 percent effectiveness rate. In both cases, the companies reported a relatively small number of instances of adverse effects, which were in almost all cases minor (e.g. headaches or sore arms).

It was great to hear the news about Pfizer last week. It is even better to get the news about Moderna. That is not only because it is good to have a second vaccine available to the United States and the world, and not just because the Moderna vaccine will be easier to distribute, but also because of the mode of funding.[1]

Assuming that the vaccines are equally effective (any difference in effectiveness reported from the Phase 3 trials will be far too small to be statistically significant), the Moderna vaccine will be far easier to distribute and store. To remain stable, the Moderna vaccine must be kept at a temperature just below zero Fahrenheit. By contrast the Pfizer vaccine must be kept at a temperature of almost -100 degrees Fahrenheit. This means that, while the Moderna vaccine can be kept in a normal freezer, the Pfizer vaccine requires special storage facilities. That will create a problem for distribution even in the United States and other rich countries. For developing countries, maintaining this super-cold temperature will be a very serious burden.    

The other important point about the Moderna vaccine is that U.S. government essentially paid for the full development costs upfront. While both the Moderna and Pfizer vaccines benefitted enormously from a key NIH funded breakthrough, in the case of the Moderna vaccine, we also picked up both its research costs and the cost of its clinical trials. The federal government initially paid Moderna $483 million for its research and Phase 1 and 2 trials. It then coughed up another $472 million for its phase 3 trial. This would cover any expenses that Moderna incurred in the development and testing of the vaccine.

On the one hand, this makes for a strong moral claim that the U.S. government should own any rights to the vaccine. After all, Moderna took no risk. If the vaccine proved to be a dud, it was already paid for its work, it would not be out any money, the taxpayers would have then thrown almost $ 1 billion in the toilet paying for the research. Ideally, we would then be able to buy the vaccine for its cost of production and distribution. We would also make it available to the rest of the world at this price and allow anyone else in the world to produce the vaccine as well, in order to get it distributed as widely as possible as quickly as possible.

But apart from the moral claim, Moderna’s success also demonstrates an important economic point. Having the government pay a company to develop a vaccine is not the same thing as throwing money in the toilet.

If that point sounds strange to people, then you haven’t paid attention to our policy on developing drugs. We spend over $40 billion annually on biomedical research each year through the National Institutes of Health and other government agencies. Most of this is for basic research, but some of it does actually go for developing drugs and clinical trials.

This spending enjoys enormous bipartisan support, including from the pharmaceutical industry. But, the argument against moving downstream and having the government pick up the tab for developing and testing drugs, and bringing them through the FDA approval process, is that we would just be throwing money in the toilet. The idea is that somehow the government is able to very effectively fund basic research, but our health agencies become incompetent morons when we move to later-stage development.

Note, this is not a question of the government actually doing the research. The vast majority of NIH spending is paid out on private contracts, not work done by NIH staff. The argument is that even if the government contracts out for research, the money will just be wasted because the government has touched it. (I describe a system of financing research through long-term contracts in chapter 5 of Rigged [it’s free].) 

While it was always hard to treat this argument seriously, it should be even harder now that we have the very visible example of Moderna. The government coughed up a bit less than $1 billion and it looks like less than nine months later, we will have a highly effective vaccine. That certainly would seem to indicate that the government can productively spend money to support the development of vaccines and presumably drugs as well.

Needless to say, the industry will have all sorts of creative arguments as to why we should not think the government can usefully fund the development of drugs, in spite of the Moderna success story. They might tell us that this success was special because it was a crisis, or because vaccines are simple (they aren’t), or a thousand other reasons, but the facts on the ground are hard to deny. The government put up the money and quickly got an effective vaccine.

 

Weighing Direct Funding versus Patent Monopolies

If we can get direct funding on the table as a feasible alternative to patent monopoly financing, then we can have a serious debate on the relative merits of the two methods. Many of the advantages of direct funding are obvious. First and foremost, nearly all drugs would be cheap if they were sold in a free market without patent monopolies or related protections. Drugs are rarely expensive to manufacture and deliver, they are expensive because the government has granted a company a monopoly on a drug that is essential for people’s lives or health. In many cases, the free market price is less than one percent of the patent monopoly price.

Having drugs sold as generics in the free market would mean that paying for drugs would no longer be a major hurdle for most people. We would not see people cutting drugs in half or skipping doses because they couldn’t afford refills and wanted to stretch their supply further. We also would not see doctors prescribing inferior drugs because they wanted to save their patients money, or the insurer would not pay for a more expensive drug. Doctors could prescribe the drug they considered best for a particular patient.

We would also take away the incentive for drug companies to lie about the safety and effectiveness of their drugs. This is a common problem, which comes up all the time. The most dramatic recent case is with the opioid crisis, where drug manufacturers have already paid billions of dollars in settlements based on the allegation that they deliberately misled physicians about the addictiveness of the new generation of opioids. If opioids sold at generic prices, there would have been far less incentive to conceal evidence about their addictiveness.

We would also make such deceptions far more difficult with publicly funded research. A condition of getting funding should be that, in addition to all patents being in the public domain, all research findings are fully public and posted on the web as soon as practical. This would make it very difficult to mislead physicians and other researchers about the safety and effectiveness of a drug, since they would all have access to the same information as the company that had developed the drug.

These are some of the advantages of publicly funded research, but we still have the question of how it compares on a per-dollar basis to patent monopoly financed research. Now that we know public funding is not the same thing as throwing money in the toilet, we can ask how many public dollars does it take to equal a dollar of patent monopoly supported research.

Given the enormous benefits from having drugs sold in a free market without patent monopolies, we may well be better off with publicly funded research even if we had to pay three or four dollars to replace a dollar of patent monopoly financed research. After all, we would save more than $400 billion annually (twice the size of the Trump tax cut) if drugs were sold in a free market; we would only have to replace around $90 billion in patent financed research.

However, there is reason for thinking that public funding might be more efficient on a per-dollar basis, most importantly because it is open. Open research would allow all researchers to learn quickly from breakthroughs that are done anywhere in the country, and ideally anywhere in the world if we arranged for worldwide collaboration.   

As I noted before, we had seen much collaboration in the early days of the pandemic, but that largely disappeared as companies raced to develop their own treatments and vaccines. I was under the impression that several of the vaccines developed by Chinese companies, including two old-fashioned dead virus vaccines, were ahead of the U.S.  vaccines in the testing process. It is difficult to know whether this is the case since we don’t have published results from the tests of these companies.

We do know that the United Arab Emirates (UAE) already granted an emergency use authorization for one of these vaccines back in mid-September, based on results from a Phase 3 trial. The Chinese government is also claiming 90 percent effectiveness for one of its vaccines, although it has not publicly released any data.

We would not expect people in the United States to take a vaccine based on the UAE’s emergency use authorization or vague claims coming from China’s researchers. However, if we had gone a collaborative route, which would have required some agreement with China and other countries, our researchers would have full access, both to China’s results and the vaccines themselves.

This means that our researchers could have performed their own tests to determine the safety and effectiveness of the vaccines developed by Chinese companies. If the UAE emergency use authorization in mid-September was based on solid evidence, it is possible that our researchers could have built on these results and obtained sufficient evidence to allow for the vaccine to be used here at a considerably earlier date than we now expect for the Pfizer and Moderna vaccines.

Needless to say, if we could have begun to distribute an effective vaccine two months or even one month sooner, the benefits in terms of lives saved, reduced infections and increased economic activity would have been enormous. Without more information, we can’t know at this point, and we may never know, whether the access to the Chinese vaccines would have allowed us to begin to immunize our population sooner, and hopefully the rest of the world as well. But, our pandemic response should have been focused on getting effective vaccines as soon as possible, rather than trying to rack up a victory for the United States in an international vaccine race.

 

Can We Debate Alternatives to Patent Monopoly Financing?

While we can’t change the past, we hopefully can learn from it. Moderna shows that direct public funding of the development and testing of a vaccine can be effective. This should open the door to a wider debate about this alternative mechanism for financing pharmaceutical research more generally. We don’t have to jump in with both feet and discard the current patent monopoly financing model. We can experiment by designating funds for research and development in specific areas, like cancer or heart disease.

My expectation is if the experiment were structured right, that we would see important new drugs developed in a reasonable time-frame. And, these drugs would be available as cheap generics from the day they were approved by the FDA. That should create considerable pressure for expanding financing to more areas.

But that may not prove correct, perhaps for some unknown reason, companies can’t do good work when they are only paid in cash and not patent monopolies. Even in that case, the spending is not likely to be a complete waste, since the open research should provide at least some insights to other scientists.

Anyhow, patents should not be a holy grail. The cost of patent monopolies to the economy, especially in the case of prescription drugs, has exploded over the last four decades. It should be possible to have a serious discussion about alternative mechanisms. 

[1] Donald Trump has complained that he is not getting credit for the vaccines. The United States, like other wealthy countries, did put up money to develop vaccines and treatment, so he can share in the credit for that reason. However, there is a perverse way in which Trump may deserve credit for an earlier than expected determination of the vaccines’ effectiveness.

In a trial, the ability to determine effectiveness depends largely on the number of infections in the control group. Because the pandemic has spread so widely in the last couple of months, the companies saw a larger number of infections in their control group, which allowed them to have large and statistically significant differences with the treatment group, sooner than they otherwise would have been the case.

If U.S. policy had been more effective in controlling the pandemic, it would have taken longer to determine the vaccines’ effectiveness. China has been testing its vaccines in Brazil, Pakistan, and other developing countries because it has been so successful in controlling the pandemic within its borders. Even if a vaccine were 100 percent effective, it would take a very long time to have a control group in China that had enough infections to allow for the vaccine’s effectiveness to be determined.  

Last week, we got the very good news that preliminary results from its Phase 3 trial showed that Pfizer’s vaccine had an effectiveness rate of 92 percent. (We now have final results that put it at 95 percent.) This week, Moderna released results showing that its vaccine also has a 95 percent effectiveness rate. In both cases, the companies reported a relatively small number of instances of adverse effects, which were in almost all cases minor (e.g. headaches or sore arms).

It was great to hear the news about Pfizer last week. It is even better to get the news about Moderna. That is not only because it is good to have a second vaccine available to the United States and the world, and not just because the Moderna vaccine will be easier to distribute, but also because of the mode of funding.[1]

Assuming that the vaccines are equally effective (any difference in effectiveness reported from the Phase 3 trials will be far too small to be statistically significant), the Moderna vaccine will be far easier to distribute and store. To remain stable, the Moderna vaccine must be kept at a temperature just below zero Fahrenheit. By contrast the Pfizer vaccine must be kept at a temperature of almost -100 degrees Fahrenheit. This means that, while the Moderna vaccine can be kept in a normal freezer, the Pfizer vaccine requires special storage facilities. That will create a problem for distribution even in the United States and other rich countries. For developing countries, maintaining this super-cold temperature will be a very serious burden.    

The other important point about the Moderna vaccine is that U.S. government essentially paid for the full development costs upfront. While both the Moderna and Pfizer vaccines benefitted enormously from a key NIH funded breakthrough, in the case of the Moderna vaccine, we also picked up both its research costs and the cost of its clinical trials. The federal government initially paid Moderna $483 million for its research and Phase 1 and 2 trials. It then coughed up another $472 million for its phase 3 trial. This would cover any expenses that Moderna incurred in the development and testing of the vaccine.

On the one hand, this makes for a strong moral claim that the U.S. government should own any rights to the vaccine. After all, Moderna took no risk. If the vaccine proved to be a dud, it was already paid for its work, it would not be out any money, the taxpayers would have then thrown almost $ 1 billion in the toilet paying for the research. Ideally, we would then be able to buy the vaccine for its cost of production and distribution. We would also make it available to the rest of the world at this price and allow anyone else in the world to produce the vaccine as well, in order to get it distributed as widely as possible as quickly as possible.

But apart from the moral claim, Moderna’s success also demonstrates an important economic point. Having the government pay a company to develop a vaccine is not the same thing as throwing money in the toilet.

If that point sounds strange to people, then you haven’t paid attention to our policy on developing drugs. We spend over $40 billion annually on biomedical research each year through the National Institutes of Health and other government agencies. Most of this is for basic research, but some of it does actually go for developing drugs and clinical trials.

This spending enjoys enormous bipartisan support, including from the pharmaceutical industry. But, the argument against moving downstream and having the government pick up the tab for developing and testing drugs, and bringing them through the FDA approval process, is that we would just be throwing money in the toilet. The idea is that somehow the government is able to very effectively fund basic research, but our health agencies become incompetent morons when we move to later-stage development.

Note, this is not a question of the government actually doing the research. The vast majority of NIH spending is paid out on private contracts, not work done by NIH staff. The argument is that even if the government contracts out for research, the money will just be wasted because the government has touched it. (I describe a system of financing research through long-term contracts in chapter 5 of Rigged [it’s free].) 

While it was always hard to treat this argument seriously, it should be even harder now that we have the very visible example of Moderna. The government coughed up a bit less than $1 billion and it looks like less than nine months later, we will have a highly effective vaccine. That certainly would seem to indicate that the government can productively spend money to support the development of vaccines and presumably drugs as well.

Needless to say, the industry will have all sorts of creative arguments as to why we should not think the government can usefully fund the development of drugs, in spite of the Moderna success story. They might tell us that this success was special because it was a crisis, or because vaccines are simple (they aren’t), or a thousand other reasons, but the facts on the ground are hard to deny. The government put up the money and quickly got an effective vaccine.

 

Weighing Direct Funding versus Patent Monopolies

If we can get direct funding on the table as a feasible alternative to patent monopoly financing, then we can have a serious debate on the relative merits of the two methods. Many of the advantages of direct funding are obvious. First and foremost, nearly all drugs would be cheap if they were sold in a free market without patent monopolies or related protections. Drugs are rarely expensive to manufacture and deliver, they are expensive because the government has granted a company a monopoly on a drug that is essential for people’s lives or health. In many cases, the free market price is less than one percent of the patent monopoly price.

Having drugs sold as generics in the free market would mean that paying for drugs would no longer be a major hurdle for most people. We would not see people cutting drugs in half or skipping doses because they couldn’t afford refills and wanted to stretch their supply further. We also would not see doctors prescribing inferior drugs because they wanted to save their patients money, or the insurer would not pay for a more expensive drug. Doctors could prescribe the drug they considered best for a particular patient.

We would also take away the incentive for drug companies to lie about the safety and effectiveness of their drugs. This is a common problem, which comes up all the time. The most dramatic recent case is with the opioid crisis, where drug manufacturers have already paid billions of dollars in settlements based on the allegation that they deliberately misled physicians about the addictiveness of the new generation of opioids. If opioids sold at generic prices, there would have been far less incentive to conceal evidence about their addictiveness.

We would also make such deceptions far more difficult with publicly funded research. A condition of getting funding should be that, in addition to all patents being in the public domain, all research findings are fully public and posted on the web as soon as practical. This would make it very difficult to mislead physicians and other researchers about the safety and effectiveness of a drug, since they would all have access to the same information as the company that had developed the drug.

These are some of the advantages of publicly funded research, but we still have the question of how it compares on a per-dollar basis to patent monopoly financed research. Now that we know public funding is not the same thing as throwing money in the toilet, we can ask how many public dollars does it take to equal a dollar of patent monopoly supported research.

Given the enormous benefits from having drugs sold in a free market without patent monopolies, we may well be better off with publicly funded research even if we had to pay three or four dollars to replace a dollar of patent monopoly financed research. After all, we would save more than $400 billion annually (twice the size of the Trump tax cut) if drugs were sold in a free market; we would only have to replace around $90 billion in patent financed research.

However, there is reason for thinking that public funding might be more efficient on a per-dollar basis, most importantly because it is open. Open research would allow all researchers to learn quickly from breakthroughs that are done anywhere in the country, and ideally anywhere in the world if we arranged for worldwide collaboration.   

As I noted before, we had seen much collaboration in the early days of the pandemic, but that largely disappeared as companies raced to develop their own treatments and vaccines. I was under the impression that several of the vaccines developed by Chinese companies, including two old-fashioned dead virus vaccines, were ahead of the U.S.  vaccines in the testing process. It is difficult to know whether this is the case since we don’t have published results from the tests of these companies.

We do know that the United Arab Emirates (UAE) already granted an emergency use authorization for one of these vaccines back in mid-September, based on results from a Phase 3 trial. The Chinese government is also claiming 90 percent effectiveness for one of its vaccines, although it has not publicly released any data.

We would not expect people in the United States to take a vaccine based on the UAE’s emergency use authorization or vague claims coming from China’s researchers. However, if we had gone a collaborative route, which would have required some agreement with China and other countries, our researchers would have full access, both to China’s results and the vaccines themselves.

This means that our researchers could have performed their own tests to determine the safety and effectiveness of the vaccines developed by Chinese companies. If the UAE emergency use authorization in mid-September was based on solid evidence, it is possible that our researchers could have built on these results and obtained sufficient evidence to allow for the vaccine to be used here at a considerably earlier date than we now expect for the Pfizer and Moderna vaccines.

Needless to say, if we could have begun to distribute an effective vaccine two months or even one month sooner, the benefits in terms of lives saved, reduced infections and increased economic activity would have been enormous. Without more information, we can’t know at this point, and we may never know, whether the access to the Chinese vaccines would have allowed us to begin to immunize our population sooner, and hopefully the rest of the world as well. But, our pandemic response should have been focused on getting effective vaccines as soon as possible, rather than trying to rack up a victory for the United States in an international vaccine race.

 

Can We Debate Alternatives to Patent Monopoly Financing?

While we can’t change the past, we hopefully can learn from it. Moderna shows that direct public funding of the development and testing of a vaccine can be effective. This should open the door to a wider debate about this alternative mechanism for financing pharmaceutical research more generally. We don’t have to jump in with both feet and discard the current patent monopoly financing model. We can experiment by designating funds for research and development in specific areas, like cancer or heart disease.

My expectation is if the experiment were structured right, that we would see important new drugs developed in a reasonable time-frame. And, these drugs would be available as cheap generics from the day they were approved by the FDA. That should create considerable pressure for expanding financing to more areas.

But that may not prove correct, perhaps for some unknown reason, companies can’t do good work when they are only paid in cash and not patent monopolies. Even in that case, the spending is not likely to be a complete waste, since the open research should provide at least some insights to other scientists.

Anyhow, patents should not be a holy grail. The cost of patent monopolies to the economy, especially in the case of prescription drugs, has exploded over the last four decades. It should be possible to have a serious discussion about alternative mechanisms. 

[1] Donald Trump has complained that he is not getting credit for the vaccines. The United States, like other wealthy countries, did put up money to develop vaccines and treatment, so he can share in the credit for that reason. However, there is a perverse way in which Trump may deserve credit for an earlier than expected determination of the vaccines’ effectiveness.

In a trial, the ability to determine effectiveness depends largely on the number of infections in the control group. Because the pandemic has spread so widely in the last couple of months, the companies saw a larger number of infections in their control group, which allowed them to have large and statistically significant differences with the treatment group, sooner than they otherwise would have been the case.

If U.S. policy had been more effective in controlling the pandemic, it would have taken longer to determine the vaccines’ effectiveness. China has been testing its vaccines in Brazil, Pakistan, and other developing countries because it has been so successful in controlling the pandemic within its borders. Even if a vaccine were 100 percent effective, it would take a very long time to have a control group in China that had enough infections to allow for the vaccine’s effectiveness to be determined.  

I have largely been in agreement with Paul Krugman in his assessment of the economy over the last dozen years or so, but I think in his latest column he let the promise of a post-Trump era get the better of him. Krugman notes that the distribution of effective vaccines should allow people to return to their normal lives.

He argues that this will lead to a spending boom, as consumers have accumulated savings through the slump and will now be in a position to spend lots of money. As a model he points to the boom in 1983 and 1984 after the Fed lowered interest rates.

While I have not been one of the doomsayers predicting economic collapse, I can’t be as optimistic as Paul on this one. First, just to be clear, Krugman does not at all question the need for immediate and substantial stimulus. In the next few months, with the pandemic spreading largely unchecked until vaccines become widely available, millions of people will be thrown out of work as restaurants, bars and other businesses in the service sector are either forced to close or see demand collapse even if they remain open.

These people will need unemployment benefits, protection from eviction, and other support until the labor market improves. State and local governments will also need massive aid to avoid a further round of layoffs and to provide essential services, including setting guidelines and rules for safe re-openings.

But getting beyond this period, once the vaccines have allowed us to return to normal, will there be a spending spree? Krugman is right about the state of people’s balance sheets. The people who have stayed employed have been doing well. The government gave them $1,200 checks, many have refinanced mortgages often saving a percentage point or more in annual interest. That’s $2,000 a year for someone with a $200,000 mortgage. And, many have been saving money as a result of not commuting to work, eating out at restaurants, or spending on other services.

Still, I don’t see this as a 1983-84 type spending boom for the simple reason that the sectors that drove that boom, housing and car buying, have not been depressed. The boom in those years followed large contractions in home buying and construction, as well as car buying, which were the result of the Fed’s high-interest rate policy.

At the trough of the recession in the third quarter of 1982, residential construction was down more than 40 percent from its peak in 1979. New car sales were down by more than 15 percent. The recovery was driven by the reversal of these drops. By the second quarter of 1984, residential construction was up almost 70 percent from its level of two years earlier. New car sales were almost 50 percent higher than they were in 1981. This was the basis of the 1980s boom.

We can’t tell any comparable story today. Both housing and car sales have done very well through this downturn. Residential construction in the most recent quarter was actually more than 5 percent higher than in the fourth quarter of 2019. Car sales were almost 8.0 percent higher. Clearly, there is no basis for expecting a boom based on pent-up demand in these sectors.

The question is whether we should expect a huge boom in other consumption spending. That doesn’t seem likely to me. We will see people return to restaurants, but do we think they will be eating meals out every night? People will go to gyms and movies again, but this will not create the sort of boom we had in 1983 and 1984. If you look at the various categories of consumption spending, it’s very hard to see anything like the booms in housing and car buying we had after the 1981-82 recession.

So what’s my story? I see many of the changes forced by the pandemic as being permanent. First and foremost, many of the people who were forced to work from home will continue to work from home. Some may move away from the cities where they are working. (We are already seeing this.) We are also likely to see less business travel as meetings and conferences are held over Zoom. We’ll see more telemedicine and, hitting close to home, less in-person classes in colleges and universities.

In many ways, this is great news. People will save hundreds of hours a year on commuting. We will also see large reductions in greenhouse gas emissions by eliminating unnecessary travel. (This will be recorded as a drop in GDP, which is yet another case where GDP is not a good measure of well-being. In effect, we are eliminating work-related expenses that provide little welfare to anyone. I discuss this issue more here.)

The downside in this story is that many of the jobs that were dependent on supporting this commuting economy will not be coming back. We are talking about millions of lost jobs in restaurants, gyms, and other businesses that serve the people who come into the city to work each day. These people will not easily find new jobs.

It is also likely to be the case that the finances of cities like New York, Boston, and others seeing major reductions in their commuting population will be badly strained. This means that they will lack the resources to help displaced workers get new jobs in areas where they are needed, like health care, child care, and clean energy.

The really bad part of this story is that the displaced workers will be overwhelmingly women, Blacks, Hispanics, and others who are disadvantaged in the labor market. These groups had been doing relatively well as the labor market tightened between 2014 and 2020. These gains evaporated with the pandemic. These groups may see this pain enduring long into the future.

So, this is a story of worsening inequality. Large sectors of the population will be doing just fine, but those at the bottom will be getting kicked in the face. I expect a Biden administration will try to help this displaced workforce, but the Republicans in Congress will be celebrating the pain in “Democrat” cities.

I can’t say how this will shape elections in 2022 and 2024. The people who are doing well may be happy and vote for Biden and the Democrats. But if the economy shapes up like I fear, this will not be a story worth celebrating.        

I have largely been in agreement with Paul Krugman in his assessment of the economy over the last dozen years or so, but I think in his latest column he let the promise of a post-Trump era get the better of him. Krugman notes that the distribution of effective vaccines should allow people to return to their normal lives.

He argues that this will lead to a spending boom, as consumers have accumulated savings through the slump and will now be in a position to spend lots of money. As a model he points to the boom in 1983 and 1984 after the Fed lowered interest rates.

While I have not been one of the doomsayers predicting economic collapse, I can’t be as optimistic as Paul on this one. First, just to be clear, Krugman does not at all question the need for immediate and substantial stimulus. In the next few months, with the pandemic spreading largely unchecked until vaccines become widely available, millions of people will be thrown out of work as restaurants, bars and other businesses in the service sector are either forced to close or see demand collapse even if they remain open.

These people will need unemployment benefits, protection from eviction, and other support until the labor market improves. State and local governments will also need massive aid to avoid a further round of layoffs and to provide essential services, including setting guidelines and rules for safe re-openings.

But getting beyond this period, once the vaccines have allowed us to return to normal, will there be a spending spree? Krugman is right about the state of people’s balance sheets. The people who have stayed employed have been doing well. The government gave them $1,200 checks, many have refinanced mortgages often saving a percentage point or more in annual interest. That’s $2,000 a year for someone with a $200,000 mortgage. And, many have been saving money as a result of not commuting to work, eating out at restaurants, or spending on other services.

Still, I don’t see this as a 1983-84 type spending boom for the simple reason that the sectors that drove that boom, housing and car buying, have not been depressed. The boom in those years followed large contractions in home buying and construction, as well as car buying, which were the result of the Fed’s high-interest rate policy.

At the trough of the recession in the third quarter of 1982, residential construction was down more than 40 percent from its peak in 1979. New car sales were down by more than 15 percent. The recovery was driven by the reversal of these drops. By the second quarter of 1984, residential construction was up almost 70 percent from its level of two years earlier. New car sales were almost 50 percent higher than they were in 1981. This was the basis of the 1980s boom.

We can’t tell any comparable story today. Both housing and car sales have done very well through this downturn. Residential construction in the most recent quarter was actually more than 5 percent higher than in the fourth quarter of 2019. Car sales were almost 8.0 percent higher. Clearly, there is no basis for expecting a boom based on pent-up demand in these sectors.

The question is whether we should expect a huge boom in other consumption spending. That doesn’t seem likely to me. We will see people return to restaurants, but do we think they will be eating meals out every night? People will go to gyms and movies again, but this will not create the sort of boom we had in 1983 and 1984. If you look at the various categories of consumption spending, it’s very hard to see anything like the booms in housing and car buying we had after the 1981-82 recession.

So what’s my story? I see many of the changes forced by the pandemic as being permanent. First and foremost, many of the people who were forced to work from home will continue to work from home. Some may move away from the cities where they are working. (We are already seeing this.) We are also likely to see less business travel as meetings and conferences are held over Zoom. We’ll see more telemedicine and, hitting close to home, less in-person classes in colleges and universities.

In many ways, this is great news. People will save hundreds of hours a year on commuting. We will also see large reductions in greenhouse gas emissions by eliminating unnecessary travel. (This will be recorded as a drop in GDP, which is yet another case where GDP is not a good measure of well-being. In effect, we are eliminating work-related expenses that provide little welfare to anyone. I discuss this issue more here.)

The downside in this story is that many of the jobs that were dependent on supporting this commuting economy will not be coming back. We are talking about millions of lost jobs in restaurants, gyms, and other businesses that serve the people who come into the city to work each day. These people will not easily find new jobs.

It is also likely to be the case that the finances of cities like New York, Boston, and others seeing major reductions in their commuting population will be badly strained. This means that they will lack the resources to help displaced workers get new jobs in areas where they are needed, like health care, child care, and clean energy.

The really bad part of this story is that the displaced workers will be overwhelmingly women, Blacks, Hispanics, and others who are disadvantaged in the labor market. These groups had been doing relatively well as the labor market tightened between 2014 and 2020. These gains evaporated with the pandemic. These groups may see this pain enduring long into the future.

So, this is a story of worsening inequality. Large sectors of the population will be doing just fine, but those at the bottom will be getting kicked in the face. I expect a Biden administration will try to help this displaced workforce, but the Republicans in Congress will be celebrating the pain in “Democrat” cities.

I can’t say how this will shape elections in 2022 and 2024. The people who are doing well may be happy and vote for Biden and the Democrats. But if the economy shapes up like I fear, this will not be a story worth celebrating.        

The New York Times had an article discussing the prospects for U.S. trade relations with China during Biden’s presidency. At one point it tells readers:

“Mr. Biden has given few details about his plans for U.S.-China relations, other than saying he wants to recruit American allies such as Europe and Japan to pressure China to make economic reforms, like protecting intellectual property.” 

Stronger and longer patent and copyright protections have redistributed enormous amounts of income upward over the past four decades, likely more than $1 trillion annually (half of all corporate profits). If Biden plans to put stronger enforcement of U.S. intellectual property claims at the center of his trade relations with China, it means he wants to redistribute even more money away from the vast majority of people who voted for him to the richest 10 percent of the population. 

That should be a big deal in a news story on Biden’s trade policy towards China.

The New York Times had an article discussing the prospects for U.S. trade relations with China during Biden’s presidency. At one point it tells readers:

“Mr. Biden has given few details about his plans for U.S.-China relations, other than saying he wants to recruit American allies such as Europe and Japan to pressure China to make economic reforms, like protecting intellectual property.” 

Stronger and longer patent and copyright protections have redistributed enormous amounts of income upward over the past four decades, likely more than $1 trillion annually (half of all corporate profits). If Biden plans to put stronger enforcement of U.S. intellectual property claims at the center of his trade relations with China, it means he wants to redistribute even more money away from the vast majority of people who voted for him to the richest 10 percent of the population. 

That should be a big deal in a news story on Biden’s trade policy towards China.

Washington Post columnist Megan McArdle was anxious to tell readers that drug development in the pandemic has been a great success story. After all, look at all the treatments we have, and now it appears that Pfizer/BioNtech have developed a highly effective vaccine. What could be better than that?

Well, first we need a bit of perspective. Yes, we place an enormous value on our health and our lives, so getting effective treatments and vaccines quickly are extremely important. But we do also care about what we pay to get there.

To take my favorite analogy, the firefighter who goes into a burning building to rescue a couple of children can be said to deserve many millions of dollars. After all, we put a huge value on human life. While firefighters are reasonably well-paid, most of their paychecks don’t cross $100,000. Should we pay all of our firefighters $1 million a year? Perhaps in some sense that would be fair, but the reality is that we can get people to do the work for far less.

And, if we want to talk about payments that are commensurate with the value they provide to society, how much did the anti-smoking activists of the 1970s, 1980s, and 1990s get paid? My guess is that most of the people (I’m sure mostly women) who crusaded to restrict smoking, originally in places like airplanes and restaurants and later public places more generally, got compensated little or nothing for their work. But how many hundreds of thousands (or millions) of lives were saved and heart attacks and strokes prevented as a result of their work. Surely that would be worth many trillions of dollars if we sought to put a price tag on it.

Telling us that the drug companies should get big bucks because their drugs save lives is beside the point. We want to know if the way we finance drug research is the best way, not just that it can lead to successful drugs and vaccines.

And the evidence certainly does not support the view that it is the best way. Let’s start with the best story, the Pfizer/BioNtech vaccine. It will certainly be great news if the initial reports of a 90 percent effectiveness rate hold up when the full results are submitted to the FDA. But how much are we paying for this vaccine?

The U.S. has an advance purchase agreement for 100 million doses (that’s 50 million people since we need two shots) at a cost of $19.95 each. According to some analysts, the vaccine can be profitably manufactured and distributed for roughly $2 a shot. That means we are handing Pfizer/BioNtech $1.7 billion extra to cover its research costs and risks because our government gave it a patent monopoly. (Patent monopolies are not the free market folks, even if right-wingers like them.) That’s a pretty good deal since it’s unlikely their research costs were even one-fourth this amount. And, the U.S. purchase is only about one-fifth of the companies’ expected 2021 output. 

It’s also important to note that the Pfizer vaccine, as well as most of the others being worked on now,  are heavily dependent on research conducted by NIH. Pfizer also can’t tell the usual story about the many years or decades of research that they claim it takes for them to develop a marketable product. In this case, we don’t need to debate the issue, we know it took them less than nine months.  

But rather than arguing whether we are getting a good deal going this patent monopoly route, let’s ask about the alternatives. There was a huge amount of international cooperation early in the pandemic, as scientists freely shared their findings, allowing for enormous progress in understanding the coronavirus.

Suppose this cooperation had continued into the development of vaccines and treatments. This would mean that all research would be fully open and shared across countries. Scientists do need to be paid for their work, but we can do that without patent monopolies.  We paid Moderna roughly $1 billion upfront to develop a vaccine. Of course, in the spirit of welfare for drug companies, we are also giving them a patent monopoly on their vaccine.

We could have gone the Moderna route more generally, paying companies to do research in specific areas, but requiring that all results be posted on the web as soon as practical and that patents are in the public domain. That means that any vaccines or treatments can be produced as generics from the day they are approved. 

To prevent free-riding we would want some international agreement on cost-sharing with other countries, requiring them to make comparable commitments for research spending given their size and wealth. That would be the sort of thing a competent government could negotiate, even if it might have been inconceivable for Donald Trump.

Would this route have gotten us a vaccine sooner? It is very possible that it would. Several Chinese companies have developed vaccines that are already far along in Phase 3 testing. One of these companies is planning to ship 46 million doses to Brazil later this month. Hundreds of thousands of people in China have already received one of the vaccines based on an Emergency Use Authorization. That may not be a good public health practice, but it does mean that we can be reasonably well-assured that the vaccines do not have serious short-term side effects.

Without more access to the data, we can’t know whether China’s vaccines would meet our standards and qualify for FDA approval. However, if we had gone the collaborative route we would have this data. And if the tests done by China’s companies were not adequate, we could do additional tests ourselves.

It is also important to note that China’s leading vaccine candidates are old-fashioned dead virus vaccines. As a result, they don’t require the super cold storage of the Pfizer/BioNtech vaccine. In a world where the U.S. is now seeing more than 140,000 new cases a day and 1,400 deaths, getting a vaccine distributed even a few weeks earlier can mean millions of fewer infections and tens of thousands of fewer deaths.

We can’t know that this collaborative route would have produced an effective vaccine more quickly, but we certainly can’t rule out that possibility. In other words, McArdle’s celebration of the success of the U.S.  drug development system is based on nothing.

But we can also look at treatments. Here we have an even murkier picture. While the monoclonal antibodies being developed by Eli Lilly and Regeneron show considerable promise, the first drug pushed as an effective treatment was Gilead’s Remdesivir. Gilead was charging over $2,000 for a course of treatment with this drug. High quality Indian generic manufacturers were charging less than one-tenth of this price. Remdesivir was also developed with considerable government support.

But even more important than the high price is the possibility that Remdesivir may not actually be an effective treatment. While the initial trial results were promising, the World Health Organization (WHO) has determined that the drug is ineffective in treating the coronavirus. Gilead disputes the WHO’s assessment and it’s possible the company is correct, but there is a simple point here; patent monopolies give drug companies a large incentive to lie.

The Indian generic manufacturers make a profit when they sell the drug for $250 for a course of treatment. But when Gilead sells it for more than $2000, it effectively has a mark-up of 1000 percent. These sorts of mark-ups give drug companies an enormous incentive to exaggerate the effectiveness of their drugs and conceal evidence of harmful side effects.

If this sort of lying is hard to imagine, let me tell you about the opioid crisis. The major opioid manufacturers have paid out billions of dollars in settlements over allegations that they deliberately concealed evidence on the addictiveness of the new generation of opioids. (For some reason, I have literally never seen any mention of the perverse incentives created by patent monopolies in discussions of the opioid crisis.)

Anyhow, I will leave the determination of the true effectiveness of Remdesivir to people more competent in the area, but it is important to note that because of its patent monopoly Gilead has a powerful incentive to not be honest in this debate. If that has led people to be improperly treated for the coronavirus, that is a very serious downside to the way we finance drug research.

In short, it takes a very selective reading of the evidence to pronounce the performance of the pharmaceutical industry in response to the pandemic a great success. We should undoubtedly be happy that we will soon have an effective vaccine and treatments, but that does not in any way establish that we followed the best path to get here.

In the old days, many countries were pursuing import-substitution as a route to development. There were some successes, but in many cases, countries would end up with factories that produced steel, cars, or other products at two or three times the world price. They could then brag that they were producing 10 million tons of steel or 2 million cars a year, but the reality would be that these projects were disastrous failures. Based on the available evidence, we cannot say that we don’t have a failed pharmaceutical industry.     

Washington Post columnist Megan McArdle was anxious to tell readers that drug development in the pandemic has been a great success story. After all, look at all the treatments we have, and now it appears that Pfizer/BioNtech have developed a highly effective vaccine. What could be better than that?

Well, first we need a bit of perspective. Yes, we place an enormous value on our health and our lives, so getting effective treatments and vaccines quickly are extremely important. But we do also care about what we pay to get there.

To take my favorite analogy, the firefighter who goes into a burning building to rescue a couple of children can be said to deserve many millions of dollars. After all, we put a huge value on human life. While firefighters are reasonably well-paid, most of their paychecks don’t cross $100,000. Should we pay all of our firefighters $1 million a year? Perhaps in some sense that would be fair, but the reality is that we can get people to do the work for far less.

And, if we want to talk about payments that are commensurate with the value they provide to society, how much did the anti-smoking activists of the 1970s, 1980s, and 1990s get paid? My guess is that most of the people (I’m sure mostly women) who crusaded to restrict smoking, originally in places like airplanes and restaurants and later public places more generally, got compensated little or nothing for their work. But how many hundreds of thousands (or millions) of lives were saved and heart attacks and strokes prevented as a result of their work. Surely that would be worth many trillions of dollars if we sought to put a price tag on it.

Telling us that the drug companies should get big bucks because their drugs save lives is beside the point. We want to know if the way we finance drug research is the best way, not just that it can lead to successful drugs and vaccines.

And the evidence certainly does not support the view that it is the best way. Let’s start with the best story, the Pfizer/BioNtech vaccine. It will certainly be great news if the initial reports of a 90 percent effectiveness rate hold up when the full results are submitted to the FDA. But how much are we paying for this vaccine?

The U.S. has an advance purchase agreement for 100 million doses (that’s 50 million people since we need two shots) at a cost of $19.95 each. According to some analysts, the vaccine can be profitably manufactured and distributed for roughly $2 a shot. That means we are handing Pfizer/BioNtech $1.7 billion extra to cover its research costs and risks because our government gave it a patent monopoly. (Patent monopolies are not the free market folks, even if right-wingers like them.) That’s a pretty good deal since it’s unlikely their research costs were even one-fourth this amount. And, the U.S. purchase is only about one-fifth of the companies’ expected 2021 output. 

It’s also important to note that the Pfizer vaccine, as well as most of the others being worked on now,  are heavily dependent on research conducted by NIH. Pfizer also can’t tell the usual story about the many years or decades of research that they claim it takes for them to develop a marketable product. In this case, we don’t need to debate the issue, we know it took them less than nine months.  

But rather than arguing whether we are getting a good deal going this patent monopoly route, let’s ask about the alternatives. There was a huge amount of international cooperation early in the pandemic, as scientists freely shared their findings, allowing for enormous progress in understanding the coronavirus.

Suppose this cooperation had continued into the development of vaccines and treatments. This would mean that all research would be fully open and shared across countries. Scientists do need to be paid for their work, but we can do that without patent monopolies.  We paid Moderna roughly $1 billion upfront to develop a vaccine. Of course, in the spirit of welfare for drug companies, we are also giving them a patent monopoly on their vaccine.

We could have gone the Moderna route more generally, paying companies to do research in specific areas, but requiring that all results be posted on the web as soon as practical and that patents are in the public domain. That means that any vaccines or treatments can be produced as generics from the day they are approved. 

To prevent free-riding we would want some international agreement on cost-sharing with other countries, requiring them to make comparable commitments for research spending given their size and wealth. That would be the sort of thing a competent government could negotiate, even if it might have been inconceivable for Donald Trump.

Would this route have gotten us a vaccine sooner? It is very possible that it would. Several Chinese companies have developed vaccines that are already far along in Phase 3 testing. One of these companies is planning to ship 46 million doses to Brazil later this month. Hundreds of thousands of people in China have already received one of the vaccines based on an Emergency Use Authorization. That may not be a good public health practice, but it does mean that we can be reasonably well-assured that the vaccines do not have serious short-term side effects.

Without more access to the data, we can’t know whether China’s vaccines would meet our standards and qualify for FDA approval. However, if we had gone the collaborative route we would have this data. And if the tests done by China’s companies were not adequate, we could do additional tests ourselves.

It is also important to note that China’s leading vaccine candidates are old-fashioned dead virus vaccines. As a result, they don’t require the super cold storage of the Pfizer/BioNtech vaccine. In a world where the U.S. is now seeing more than 140,000 new cases a day and 1,400 deaths, getting a vaccine distributed even a few weeks earlier can mean millions of fewer infections and tens of thousands of fewer deaths.

We can’t know that this collaborative route would have produced an effective vaccine more quickly, but we certainly can’t rule out that possibility. In other words, McArdle’s celebration of the success of the U.S.  drug development system is based on nothing.

But we can also look at treatments. Here we have an even murkier picture. While the monoclonal antibodies being developed by Eli Lilly and Regeneron show considerable promise, the first drug pushed as an effective treatment was Gilead’s Remdesivir. Gilead was charging over $2,000 for a course of treatment with this drug. High quality Indian generic manufacturers were charging less than one-tenth of this price. Remdesivir was also developed with considerable government support.

But even more important than the high price is the possibility that Remdesivir may not actually be an effective treatment. While the initial trial results were promising, the World Health Organization (WHO) has determined that the drug is ineffective in treating the coronavirus. Gilead disputes the WHO’s assessment and it’s possible the company is correct, but there is a simple point here; patent monopolies give drug companies a large incentive to lie.

The Indian generic manufacturers make a profit when they sell the drug for $250 for a course of treatment. But when Gilead sells it for more than $2000, it effectively has a mark-up of 1000 percent. These sorts of mark-ups give drug companies an enormous incentive to exaggerate the effectiveness of their drugs and conceal evidence of harmful side effects.

If this sort of lying is hard to imagine, let me tell you about the opioid crisis. The major opioid manufacturers have paid out billions of dollars in settlements over allegations that they deliberately concealed evidence on the addictiveness of the new generation of opioids. (For some reason, I have literally never seen any mention of the perverse incentives created by patent monopolies in discussions of the opioid crisis.)

Anyhow, I will leave the determination of the true effectiveness of Remdesivir to people more competent in the area, but it is important to note that because of its patent monopoly Gilead has a powerful incentive to not be honest in this debate. If that has led people to be improperly treated for the coronavirus, that is a very serious downside to the way we finance drug research.

In short, it takes a very selective reading of the evidence to pronounce the performance of the pharmaceutical industry in response to the pandemic a great success. We should undoubtedly be happy that we will soon have an effective vaccine and treatments, but that does not in any way establish that we followed the best path to get here.

In the old days, many countries were pursuing import-substitution as a route to development. There were some successes, but in many cases, countries would end up with factories that produced steel, cars, or other products at two or three times the world price. They could then brag that they were producing 10 million tons of steel or 2 million cars a year, but the reality would be that these projects were disastrous failures. Based on the available evidence, we cannot say that we don’t have a failed pharmaceutical industry.     

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