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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.

A few weeks back I did a post noting that states governed by Republicans had the highest positive test rates, while the states with the lowest positive rates were mostly governed by Democrats. I argued that positive test rates are a good measure of how serious the governors are in trying to bring the pandemic under control.

While they can take measures to limit the actual spread, such as longer and stronger lockdowns and mask requirements, many factors determining the spread are outside their control. By contrast, they do have control over the amount of testing, although legislatures can play a role, since they can appropriate or restrict funding. Testing has also become a political issue, since Donald Trump explicitly said that he wanted to see testing slowed so as to reduce the number of cases identified.

I thought it was worth an update to see what the story looks like as the country is now experiencing a huge surge in infections. Here’s the more recent picture showing the ten states with the highest infection rates and the ten states with the lowest rates, based on the John Hopkins Coronavirus Resource Center, 7-day moving averages. (Data are for October 26, 2020.)

Source: John Hopkins Coronavirus Resource Center.

Eight of the ten states with the highest rates have Republican governors. Kansas and Nevada, which come in 8th and 9th, both have Democratic governors.[1] While Democrats also control the legislature in Nevada, the legislature in Kansas is overwhelmingly Republican.

The story is more mixed among the states with the lowest positive rates, with five having Democratic governors and five having Republican governors. However, it is worth noting that all five of the states with Republican governors have legislatures that are controlled by the Democrats.

In short, by this measure of efforts at getting the pandemic under control, Democrats seem far more serious than Republicans.

[1] The 100 percent positive rate shown for Mississippi is the result of the way John Hopkins reports the data. They show the number of positives as a percentage of the tests given in the period, not as a percentage of the results reported that day.

A few weeks back I did a post noting that states governed by Republicans had the highest positive test rates, while the states with the lowest positive rates were mostly governed by Democrats. I argued that positive test rates are a good measure of how serious the governors are in trying to bring the pandemic under control.

While they can take measures to limit the actual spread, such as longer and stronger lockdowns and mask requirements, many factors determining the spread are outside their control. By contrast, they do have control over the amount of testing, although legislatures can play a role, since they can appropriate or restrict funding. Testing has also become a political issue, since Donald Trump explicitly said that he wanted to see testing slowed so as to reduce the number of cases identified.

I thought it was worth an update to see what the story looks like as the country is now experiencing a huge surge in infections. Here’s the more recent picture showing the ten states with the highest infection rates and the ten states with the lowest rates, based on the John Hopkins Coronavirus Resource Center, 7-day moving averages. (Data are for October 26, 2020.)

Source: John Hopkins Coronavirus Resource Center.

Eight of the ten states with the highest rates have Republican governors. Kansas and Nevada, which come in 8th and 9th, both have Democratic governors.[1] While Democrats also control the legislature in Nevada, the legislature in Kansas is overwhelmingly Republican.

The story is more mixed among the states with the lowest positive rates, with five having Democratic governors and five having Republican governors. However, it is worth noting that all five of the states with Republican governors have legislatures that are controlled by the Democrats.

In short, by this measure of efforts at getting the pandemic under control, Democrats seem far more serious than Republicans.

[1] The 100 percent positive rate shown for Mississippi is the result of the way John Hopkins reports the data. They show the number of positives as a percentage of the tests given in the period, not as a percentage of the results reported that day.

I had a short vacation last week, so my comments are both late and short. I will yet again take a shot at patent monopolies as a mechanism for financing the development of prescription drugs. This is because it is in the news, both with Purdue Pharma’s settlement in the opioid case and also with China’s moving forward in distributing a coronavirus vaccine.

 

Patents and Lying

 

Starting with the Purdue Pharma settlement, I did not see any mention anywhere of the fact that government-granted patent monopolies give companies like Purdue incentive to push their drugs. While I would not expect every article that reported on the settlement, or the opioid crisis more generally, I would expect that we would see references to this obvious point at least some of the time.

It would be as though news reports on the low agricultural output in the Soviet Union never made reference to its system of central planning, which seems to be ill-suited to promoting high productivity agriculture. Again, we would not necessarily expect every news report talking about a poor harvest in the Soviet Union to give a diatribe on the failures of central planning, but we would expect that there would be occasional references to the issue. And that certainly was the case in my memory of the reporting.

In case the point is not entirely clear, by raising drug prices far above the free market price, patent monopolies provide a powerful incentive for drug companies to push their drugs, even in contexts where they may not be safe or the most effective treatment for a specific condition. This is Econ 101. People respond to incentives, the high prices allowed by patent monopolies give companies large incentives to sell as many prescriptions as possible.

While generic companies also make a profit, and also have an incentive to sell as many prescriptions as possible, the margins for a generic manufacturer don’t provide anywhere near the incentives provided by patent monopoly prices. In the former case, we may be looking at markups of, say 100 percent, over the costs of manufacturing and distribution. In the case of patent protected drug, the markups can easily be several thousand percent. For those sorts of profits, companies are willing to lie about the safety and effectiveness of their drugs.

The opioid crisis is an extreme case, but we see instances where drug companies provide misleading information all the time. A famous example from the now somewhat distant past was when Merck was accused of withholding information indicating that its arthritis drug Vioxx, may be dangerous for people with heart disease. This was a particularly big deal since there is a large overlap of people with heart conditions and people suffering from arthritis.

We did a paper on this topic a few years back. The point is both that lying about the safety and effectiveness of drugs is a 100 percent predictable result of patent monopolies and, that such lying occurs all the time, with very real health consequences.

 

Incentives for Secrecy Impede Progress

 

I have been jumping up and down, here in Southern Utah, complaining that we did not pursue a collaborative process for developing vaccines and treatments for the coronavirus. The argument is that, since we are paying for much of the research upfront, we should require that it all be open so that everyone could benefit from other companies’ research findings. This sort of collaboration should have been negotiated on an international basis, which is the sort of thing a competent administration could have done. This would have both expanded the pool of useful research and limiting free-riding.

The latest news in this area is that China continues to move forward with the development and distribution of a vaccine. It is now in the process of mass distribution of one of its vaccines, although it has not yet completed Phase 3 testing.

While not waiting until all the results of a Phase 3 trial are available may not be a good practice, if we had gone a collaborative route, people in the United States would have full access to a Chinese vaccine as soon as it was determined to be safe and effective (by our standards, not theirs.) Since we are now back to over 70,000 infections a day, and one thousand deaths, even a month’s gain in the use of a vaccine would make a large difference in terms of prevented deaths and infections.

It is unfortunate that Trump insisted an America First approach, and allowing companies like Moderna to get patent monopolies even when pretty much the entire research costs were picked up by the government. It will be a needless tragedy if tens of thousands of people die and hundreds get infected as a result of this decision.

 

Patents and Inequality

It is now accepted wisdom in most circles that growing inequality is a serious problem and that we should be taking steps to try to reduce inequality or at least limit it. Incredibly, patent and copyright monopolies never come up in discussions of inequality.  

This is sort of mind-boggling since they are so obviously a contributor to inequality. High income people benefit from patent and copyright monopolies. There are not a lot of current or former autoworkers and dishwashers who draw substantial income from patent rents. That they redistribute income from lower income people to higher income people is not really a debatable proposition. I have argued that they redistribute a very large amount of income, likely more than $1 trillion a year, or roughly half of before-tax corporate profits.

And the other obvious point is that patents, and their twin copyright monopolies, are explicit government policy. We can make them longer and stronger, or shorter and weaker. Or we can choose to have alternative mechanisms to finance research and creative work. How much income is redistributed upward through these government-granted monopolies is entirely a matter of policy. It is not a fact of nature.

Nonetheless, you can go through the endless volumes on inequality and almost never see a reference to patents or copyrights. They are simply ignored.

Question for Discussion: Why Don’t People Talk About Patents?

 

So, this brings us back to the topic of why? When the abuses and inequality resulting from the patent system kick us in the face on daily basis, why does no one ever talk about it?  Does it really not occur to any of the economic, legal, or health care reporters that cover the Purdue Pharma settlement that patents might be relevant to the story. Did no one writing on the progress of the U.S. and China in developing a vaccine ever think that it may have been good for both countries and humanity if we had worked together? Did no one who writes on inequality ever think that Bill Gates might be less wealthy f the government didn’t give Microsoft copyright and patent monopolies on its software?

I really have no idea what the answer to this question is. I don’t know why reporters, economists, and other policy types don’t talk about the abuses and waste created by patent and copyright monopolies. I just know that they don’t. Maybe I will come up with some good answers on my next vacation.  

 

 

I had a short vacation last week, so my comments are both late and short. I will yet again take a shot at patent monopolies as a mechanism for financing the development of prescription drugs. This is because it is in the news, both with Purdue Pharma’s settlement in the opioid case and also with China’s moving forward in distributing a coronavirus vaccine.

 

Patents and Lying

 

Starting with the Purdue Pharma settlement, I did not see any mention anywhere of the fact that government-granted patent monopolies give companies like Purdue incentive to push their drugs. While I would not expect every article that reported on the settlement, or the opioid crisis more generally, I would expect that we would see references to this obvious point at least some of the time.

It would be as though news reports on the low agricultural output in the Soviet Union never made reference to its system of central planning, which seems to be ill-suited to promoting high productivity agriculture. Again, we would not necessarily expect every news report talking about a poor harvest in the Soviet Union to give a diatribe on the failures of central planning, but we would expect that there would be occasional references to the issue. And that certainly was the case in my memory of the reporting.

In case the point is not entirely clear, by raising drug prices far above the free market price, patent monopolies provide a powerful incentive for drug companies to push their drugs, even in contexts where they may not be safe or the most effective treatment for a specific condition. This is Econ 101. People respond to incentives, the high prices allowed by patent monopolies give companies large incentives to sell as many prescriptions as possible.

While generic companies also make a profit, and also have an incentive to sell as many prescriptions as possible, the margins for a generic manufacturer don’t provide anywhere near the incentives provided by patent monopoly prices. In the former case, we may be looking at markups of, say 100 percent, over the costs of manufacturing and distribution. In the case of patent protected drug, the markups can easily be several thousand percent. For those sorts of profits, companies are willing to lie about the safety and effectiveness of their drugs.

The opioid crisis is an extreme case, but we see instances where drug companies provide misleading information all the time. A famous example from the now somewhat distant past was when Merck was accused of withholding information indicating that its arthritis drug Vioxx, may be dangerous for people with heart disease. This was a particularly big deal since there is a large overlap of people with heart conditions and people suffering from arthritis.

We did a paper on this topic a few years back. The point is both that lying about the safety and effectiveness of drugs is a 100 percent predictable result of patent monopolies and, that such lying occurs all the time, with very real health consequences.

 

Incentives for Secrecy Impede Progress

 

I have been jumping up and down, here in Southern Utah, complaining that we did not pursue a collaborative process for developing vaccines and treatments for the coronavirus. The argument is that, since we are paying for much of the research upfront, we should require that it all be open so that everyone could benefit from other companies’ research findings. This sort of collaboration should have been negotiated on an international basis, which is the sort of thing a competent administration could have done. This would have both expanded the pool of useful research and limiting free-riding.

The latest news in this area is that China continues to move forward with the development and distribution of a vaccine. It is now in the process of mass distribution of one of its vaccines, although it has not yet completed Phase 3 testing.

While not waiting until all the results of a Phase 3 trial are available may not be a good practice, if we had gone a collaborative route, people in the United States would have full access to a Chinese vaccine as soon as it was determined to be safe and effective (by our standards, not theirs.) Since we are now back to over 70,000 infections a day, and one thousand deaths, even a month’s gain in the use of a vaccine would make a large difference in terms of prevented deaths and infections.

It is unfortunate that Trump insisted an America First approach, and allowing companies like Moderna to get patent monopolies even when pretty much the entire research costs were picked up by the government. It will be a needless tragedy if tens of thousands of people die and hundreds get infected as a result of this decision.

 

Patents and Inequality

It is now accepted wisdom in most circles that growing inequality is a serious problem and that we should be taking steps to try to reduce inequality or at least limit it. Incredibly, patent and copyright monopolies never come up in discussions of inequality.  

This is sort of mind-boggling since they are so obviously a contributor to inequality. High income people benefit from patent and copyright monopolies. There are not a lot of current or former autoworkers and dishwashers who draw substantial income from patent rents. That they redistribute income from lower income people to higher income people is not really a debatable proposition. I have argued that they redistribute a very large amount of income, likely more than $1 trillion a year, or roughly half of before-tax corporate profits.

And the other obvious point is that patents, and their twin copyright monopolies, are explicit government policy. We can make them longer and stronger, or shorter and weaker. Or we can choose to have alternative mechanisms to finance research and creative work. How much income is redistributed upward through these government-granted monopolies is entirely a matter of policy. It is not a fact of nature.

Nonetheless, you can go through the endless volumes on inequality and almost never see a reference to patents or copyrights. They are simply ignored.

Question for Discussion: Why Don’t People Talk About Patents?

 

So, this brings us back to the topic of why? When the abuses and inequality resulting from the patent system kick us in the face on daily basis, why does no one ever talk about it?  Does it really not occur to any of the economic, legal, or health care reporters that cover the Purdue Pharma settlement that patents might be relevant to the story. Did no one writing on the progress of the U.S. and China in developing a vaccine ever think that it may have been good for both countries and humanity if we had worked together? Did no one who writes on inequality ever think that Bill Gates might be less wealthy f the government didn’t give Microsoft copyright and patent monopolies on its software?

I really have no idea what the answer to this question is. I don’t know why reporters, economists, and other policy types don’t talk about the abuses and waste created by patent and copyright monopolies. I just know that they don’t. Maybe I will come up with some good answers on my next vacation.  

 

 

The Washington Post had a piece last week discussing the extent to which the pandemic, and more specifically increased opportunities for remote work, will affect thriving cities like New York and San Francisco. The main conclusion of the piece is that it won’t have much impact.

This view is a bit peculiar. The argument in the article is essentially that these cities are very attractive places to live, and that will continue to be the case even if people have more opportunities to work remotely.

However, that is not really the question. This is not a zero/one proposition. People will still want to live in places like Seattle, San Francisco, and New York even if everyone could work remotely. But that is besides the point. The issue is whether fewer people will want to live in these cities if they had the option to keep their jobs and work somewhere with much lower housing costs.

It is far too early to answer this question conclusively, but there is plenty of anecdotal evidence from realtors and other actors in the housing market that people are leaving high-priced cities and moving to lower cost locations. This pattern is also visible in the Case-Shiller House Price Index for several major cities.

The graph below shows the increase in the Case-Shiller Index from February of 2019 to February of 2020 for several major cities and for the country as a whole. It also shows the annualized growth rate reported from March to August.

Source: Case-Shiller House Price  Indices, downloaded from FRED.

As can be seen, the rate of increase in the index slowed sharply for several cities, most notably New York. The index had increased by 1.8 in the year from February 2019 to February of 2020, but then declined at a 2.5 percent annual rate from March to August. It is worth noting that this index is for the whole New York metro area. This means that the decline in prices for the city itself could be much larger if it was offset by rapid price rises in distant suburbs.

There is a similar story for San Francisco where prices had risen by 3.7 percent in the year preceding February of 2020, but have declined at a 1.1 percent annual rate since March. Other cities covered in the index do not show this sort of sharp reversal, but most do not share in the sharp appreciation in house prices shown in the national index.

The national index shows a sharp uptick in house price growth. Prices rose by 4.5 percent in the year prior to February, 2020. Since March they have risen at a 9.2 percent annual rate. This reflects a buying boom that has come in the wake of the pandemic and also a sharp drop in mortgage interest rates. The implication is that people are finding areas other than the superstar cities to be relatively more attractive in the pandemic era.

The one notable exception among the cities in the Case-Shiller index (there are 20) is Charlotte, North Carolina. Prices in Charlotte rose 5.4 percent in the year to February, 2020. Since March they have risen at a 10.4 percent annual rate. This acceleration fits the story of people leaving expensive densely populated cities like New York and looking for less-crowded and less expensive cities.

It is still too early to make any definitive judgements, but as remote work becomes more accepted, it is hard to believe that many people will not take the opportunity to move to lower cost parts of the country. This doesn’t mean New York and San Francisco will become ghost towns, but it will mean that prices of real estate there may fall a great deal.

This is largely a good story in my view (more affordable housing is generally good), but it does mean that many jobs in businesses serving the city’s office workers may never come back. That can be an opportunity for creating new jobs doing important tasks, like child care and elder care and installing solar panels and retrofitting buildings to be more energy efficient. Of course that will require government resources to carry through this restructuring, but if we make the commitment, we will end up in a much better place.  

 

The Washington Post had a piece last week discussing the extent to which the pandemic, and more specifically increased opportunities for remote work, will affect thriving cities like New York and San Francisco. The main conclusion of the piece is that it won’t have much impact.

This view is a bit peculiar. The argument in the article is essentially that these cities are very attractive places to live, and that will continue to be the case even if people have more opportunities to work remotely.

However, that is not really the question. This is not a zero/one proposition. People will still want to live in places like Seattle, San Francisco, and New York even if everyone could work remotely. But that is besides the point. The issue is whether fewer people will want to live in these cities if they had the option to keep their jobs and work somewhere with much lower housing costs.

It is far too early to answer this question conclusively, but there is plenty of anecdotal evidence from realtors and other actors in the housing market that people are leaving high-priced cities and moving to lower cost locations. This pattern is also visible in the Case-Shiller House Price Index for several major cities.

The graph below shows the increase in the Case-Shiller Index from February of 2019 to February of 2020 for several major cities and for the country as a whole. It also shows the annualized growth rate reported from March to August.

Source: Case-Shiller House Price  Indices, downloaded from FRED.

As can be seen, the rate of increase in the index slowed sharply for several cities, most notably New York. The index had increased by 1.8 in the year from February 2019 to February of 2020, but then declined at a 2.5 percent annual rate from March to August. It is worth noting that this index is for the whole New York metro area. This means that the decline in prices for the city itself could be much larger if it was offset by rapid price rises in distant suburbs.

There is a similar story for San Francisco where prices had risen by 3.7 percent in the year preceding February of 2020, but have declined at a 1.1 percent annual rate since March. Other cities covered in the index do not show this sort of sharp reversal, but most do not share in the sharp appreciation in house prices shown in the national index.

The national index shows a sharp uptick in house price growth. Prices rose by 4.5 percent in the year prior to February, 2020. Since March they have risen at a 9.2 percent annual rate. This reflects a buying boom that has come in the wake of the pandemic and also a sharp drop in mortgage interest rates. The implication is that people are finding areas other than the superstar cities to be relatively more attractive in the pandemic era.

The one notable exception among the cities in the Case-Shiller index (there are 20) is Charlotte, North Carolina. Prices in Charlotte rose 5.4 percent in the year to February, 2020. Since March they have risen at a 10.4 percent annual rate. This acceleration fits the story of people leaving expensive densely populated cities like New York and looking for less-crowded and less expensive cities.

It is still too early to make any definitive judgements, but as remote work becomes more accepted, it is hard to believe that many people will not take the opportunity to move to lower cost parts of the country. This doesn’t mean New York and San Francisco will become ghost towns, but it will mean that prices of real estate there may fall a great deal.

This is largely a good story in my view (more affordable housing is generally good), but it does mean that many jobs in businesses serving the city’s office workers may never come back. That can be an opportunity for creating new jobs doing important tasks, like child care and elder care and installing solar panels and retrofitting buildings to be more energy efficient. Of course that will require government resources to carry through this restructuring, but if we make the commitment, we will end up in a much better place.  

 

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Maybe this is too obvious a point, but I don’t see it mentioned in news coverage of the company’s settlement. If we could ever have a serious debate on the relative merits of government-granted patent monopolies compared with direct upfront funding, as we did with Moderna’s research on a coronavirus vaccine, the incentive that patents give to lie about the safety and effectiveness of drugs would be an important factor.

Unfortunately, we may never have this debate because our policy types refuse to consider any alternatives to the patent monopoly system. It’s sort of like in the days of the Soviet Union, they didn’t have public debates on the merits of central planning.

Maybe this is too obvious a point, but I don’t see it mentioned in news coverage of the company’s settlement. If we could ever have a serious debate on the relative merits of government-granted patent monopolies compared with direct upfront funding, as we did with Moderna’s research on a coronavirus vaccine, the incentive that patents give to lie about the safety and effectiveness of drugs would be an important factor.

Unfortunately, we may never have this debate because our policy types refuse to consider any alternatives to the patent monopoly system. It’s sort of like in the days of the Soviet Union, they didn’t have public debates on the merits of central planning.

A common problem in policy circles is that government protections that redistribute income upward are defined as part of the market, and getting rid of them or weakening them is described as government intervention. This issue comes up most frequently with government-granted patent monopolies with prescription drugs. Any measure to lower prices by weakening patent monopoly protections is treated as government intervention, while the patent monopoly itself is treated as the free market. And, just to remind people, patent monopolies on prescription drugs cost us more than $400 billion annually, more than twice the amount at stake with the Trump tax cut.

This Washington Post piece describes the prospect of the Federal Communications Commission (FCC) removing Section 230 protection for Internet intermediaries, like Facebook and Twitter, as “regulation.” This turns reality on its head. Removing this protection would mean that Internet intermediaries would be subject to the same rules on libel as traditional media outlets like CNN and the Washington Post. There is no obvious reason why an Internet intermediary should be subject to different standards, although this protection does obviously increase their profits and allow people like Mark Zuckerberg to get very rich.

It is worth noting that this threat to remove Section 230 protections from FCC chair Ajit Pai, is obviously an act of political intimidation directed at Facebook and Twitter. The FCC is supposed to be nonpolitical. This should be the basis for removing him as FCC chair.

A common problem in policy circles is that government protections that redistribute income upward are defined as part of the market, and getting rid of them or weakening them is described as government intervention. This issue comes up most frequently with government-granted patent monopolies with prescription drugs. Any measure to lower prices by weakening patent monopoly protections is treated as government intervention, while the patent monopoly itself is treated as the free market. And, just to remind people, patent monopolies on prescription drugs cost us more than $400 billion annually, more than twice the amount at stake with the Trump tax cut.

This Washington Post piece describes the prospect of the Federal Communications Commission (FCC) removing Section 230 protection for Internet intermediaries, like Facebook and Twitter, as “regulation.” This turns reality on its head. Removing this protection would mean that Internet intermediaries would be subject to the same rules on libel as traditional media outlets like CNN and the Washington Post. There is no obvious reason why an Internet intermediary should be subject to different standards, although this protection does obviously increase their profits and allow people like Mark Zuckerberg to get very rich.

It is worth noting that this threat to remove Section 230 protections from FCC chair Ajit Pai, is obviously an act of political intimidation directed at Facebook and Twitter. The FCC is supposed to be nonpolitical. This should be the basis for removing him as FCC chair.

It seems increasingly likely that China will begin providing vaccines to its own people, as well as those in some other countries, by December, and possibly as early as next month. The prospect of a vaccine being available that soon has to look good to people here, now that the Trump administration’s pandemic control efforts have completely failed. The whole country would like to get back to normal, but that doesn’t seem like a serious possibility until we have an effective vaccine widely available.

It seems China’s leading vaccine makers got ahead of the ones in the U.S. and Europe by using the old-fashioned dead-virus approach to developing a vaccine. This is a well-known technology that they were apparently able to quickly adapt for a vaccine providing protection against the coronavirus. This allowed them to get into the field sooner with large-scale Phase 3 tests. It also has apparently created fewer issues with side effects than the mRNA vaccines being pursued here. In addition, the dead virus vaccines do not require super-cold storage, like the mRNA vaccines. That will be a huge problem in the developing world, but also a serious logistic problem even in the United States.

China has followed a path of questionable safety in carrying out large-scale vaccination on emergency use authorization. The people being vaccinated were not just frontline workers in hospitals at high risk of catching the virus, but also students traveling abroad and others who were not in obviously high-risk categories. Several hundred thousand people have now received one of China’s vaccines on this basis.

While we may not approve of China’s lax standards, we can still learn from its experience. At this point, we can be fairly well assured that its leading vaccines do not have harmful short-term side effects.

If the United States had pursued a route of open collaborative research, we would now be in a position to start mass-producing China’s leading vaccines and distributing them as soon as evidence of their effectiveness was sufficiently established to satisfy the Food and Drug Administration’s (FDA) standards for approval. Collaborative research would have meant that all the results from clinical trials were freely shared as soon as they were available. This means that we would have the results at the same time as China’s health safety agency, and of course, companies here would be free to run their own trials with China’s vaccines.

This sort of collaboration would have had to have been negotiated. Donald Trump, with his “America First” rants, had no interest in international collaboration and therefore never tried to negotiate any plan for open research with equitable cost-sharing across countries. Unfortunately, leading Democrats, with their determination to use patent monopolies to increase inequality, never sought to raise the issue either.

As a result of this failed leadership, we may be waiting for months longer than necessary for our lives to get back to normal. This will mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections, but hey, at least we preserved the idea that we need government-granted patent monopolies to finance research. And, we can create many high-paying jobs for economists and policy types trying to figure out ways to combat inequality.

It seems increasingly likely that China will begin providing vaccines to its own people, as well as those in some other countries, by December, and possibly as early as next month. The prospect of a vaccine being available that soon has to look good to people here, now that the Trump administration’s pandemic control efforts have completely failed. The whole country would like to get back to normal, but that doesn’t seem like a serious possibility until we have an effective vaccine widely available.

It seems China’s leading vaccine makers got ahead of the ones in the U.S. and Europe by using the old-fashioned dead-virus approach to developing a vaccine. This is a well-known technology that they were apparently able to quickly adapt for a vaccine providing protection against the coronavirus. This allowed them to get into the field sooner with large-scale Phase 3 tests. It also has apparently created fewer issues with side effects than the mRNA vaccines being pursued here. In addition, the dead virus vaccines do not require super-cold storage, like the mRNA vaccines. That will be a huge problem in the developing world, but also a serious logistic problem even in the United States.

China has followed a path of questionable safety in carrying out large-scale vaccination on emergency use authorization. The people being vaccinated were not just frontline workers in hospitals at high risk of catching the virus, but also students traveling abroad and others who were not in obviously high-risk categories. Several hundred thousand people have now received one of China’s vaccines on this basis.

While we may not approve of China’s lax standards, we can still learn from its experience. At this point, we can be fairly well assured that its leading vaccines do not have harmful short-term side effects.

If the United States had pursued a route of open collaborative research, we would now be in a position to start mass-producing China’s leading vaccines and distributing them as soon as evidence of their effectiveness was sufficiently established to satisfy the Food and Drug Administration’s (FDA) standards for approval. Collaborative research would have meant that all the results from clinical trials were freely shared as soon as they were available. This means that we would have the results at the same time as China’s health safety agency, and of course, companies here would be free to run their own trials with China’s vaccines.

This sort of collaboration would have had to have been negotiated. Donald Trump, with his “America First” rants, had no interest in international collaboration and therefore never tried to negotiate any plan for open research with equitable cost-sharing across countries. Unfortunately, leading Democrats, with their determination to use patent monopolies to increase inequality, never sought to raise the issue either.

As a result of this failed leadership, we may be waiting for months longer than necessary for our lives to get back to normal. This will mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections, but hey, at least we preserved the idea that we need government-granted patent monopolies to finance research. And, we can create many high-paying jobs for economists and policy types trying to figure out ways to combat inequality.

In an article on a contribution by Facebook to support efforts to administer the election, the Washington Post noted that Donald Trump recently tweeted “REPEAL SECTION 230!!!.” The piece then described Section 230 as “a part of U.S. law that protects social networks from litigation for their decisions regarding content moderation.”

Actually, Section 230 has nothing to do with protecting Facebook and other social networks from litigation over their content moderation. Facebook is a private network. That means, that just like the Washington Post it can make any decision it wants about the content that it carries.

What Section 230 does is protect Facebook from liability for defamatory content. This means, for example, if someone transmitted false assertions on Facebook that a person was a thief and a murderer, Facebook could not be sued. By contrast, if someone printed the identical claims in a Washington Post ad, the Post would face liability along with the person who bought the ad. Section 230 effectively allows Facebook to profit from being a conduit of libelous material.

In an article on a contribution by Facebook to support efforts to administer the election, the Washington Post noted that Donald Trump recently tweeted “REPEAL SECTION 230!!!.” The piece then described Section 230 as “a part of U.S. law that protects social networks from litigation for their decisions regarding content moderation.”

Actually, Section 230 has nothing to do with protecting Facebook and other social networks from litigation over their content moderation. Facebook is a private network. That means, that just like the Washington Post it can make any decision it wants about the content that it carries.

What Section 230 does is protect Facebook from liability for defamatory content. This means, for example, if someone transmitted false assertions on Facebook that a person was a thief and a murderer, Facebook could not be sued. By contrast, if someone printed the identical claims in a Washington Post ad, the Post would face liability along with the person who bought the ad. Section 230 effectively allows Facebook to profit from being a conduit of libelous material.

That would seem to be the case from reading the paper’s editorial on the need to take steps to reduce extreme poverty in developing countries. The editorial never once mentions the proposal before the International Monetary Fund to substantially increase the special drawing rights available to developing countries.

This measure, which has the support of the I.M.F. leadership, and most of its member states (but not the Trump administration), would give the developing countries resources to help their economies recover from the pandemic. It is surprising that the Post would not mention it in an editorial on reducing world poverty.

It is also worth noting that the Trump method of pursuing a vaccine, with grants of patent monopolies, rather than an open collaborative effort, is likely to make it more difficult for developing countries to get access to a vaccine. While this route does contribute to the upward distribution of income, it is not an efficient way to develop a vaccine. It does appear as though China is at least partially filling the gap created by the Trump administration going this route. 

That would seem to be the case from reading the paper’s editorial on the need to take steps to reduce extreme poverty in developing countries. The editorial never once mentions the proposal before the International Monetary Fund to substantially increase the special drawing rights available to developing countries.

This measure, which has the support of the I.M.F. leadership, and most of its member states (but not the Trump administration), would give the developing countries resources to help their economies recover from the pandemic. It is surprising that the Post would not mention it in an editorial on reducing world poverty.

It is also worth noting that the Trump method of pursuing a vaccine, with grants of patent monopolies, rather than an open collaborative effort, is likely to make it more difficult for developing countries to get access to a vaccine. While this route does contribute to the upward distribution of income, it is not an efficient way to develop a vaccine. It does appear as though China is at least partially filling the gap created by the Trump administration going this route. 

I have been harping on the fact that it is very likely China will be mass producing and distributing a vaccine at least a month, and quite possibly several months, before the United States. This should make people very angry.

Even a month’s delay is likely to mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections. And, it adds a month to the time period before we can get back to living normal lives. Of course, the delay could end up being many months, since we still have no idea how the clinical trials will turn out for the leading U.S. contenders.

We are in the situation where we can be waiting several months for a vaccine, after one has already been demonstrated to be safe and effective, because the Trump administration opted to pursue a route of patent monopoly research, as opposed to open-source collaborative research. If Trump had gone the latter route, as soon as China, or anyone, had a vaccine, everyone would have a vaccine, or at least everyone would be able to manufacture it.

 

Patent Monopoly Financing Versus Open Source

Since people seem to find the alternative to Trump’s patent monopoly approach confusing, let me outline it simply, so that people can see what is at issue. As it turned out, Trump quite explicitly turned the development of a vaccine into a race. He created “Operation Warp Speed,” to which he committed more than $10 billion of public funds. This effort is supposed to develop both vaccines and treatments for the coronavirus.

The funding takes a variety of forms. Several companies received some upfront funding, but are relying primarily on advance purchase agreements for an effective vaccine. For example, Pfizer signed a contract that commits the government to buying 100 million doses for $1.95 billion ($19.50 per shot), if it has a successful vaccine.

By contrast, Moderna relied largely on upfront funding, getting $483 million for its pre-clinical research and phase 1 and 2 trials, and then another $472 million to cover the cost of its phase 3 trials. Incredibly, after largely picking up Moderna’s development costs, the government is also allowing Moderna to have a patent monopoly on its vaccine. This means it will effectively be paying Moderna twice. First with the direct funding and then a second time by allowing it to charge monopoly prices on its vaccine.

This nationalistic patent monopoly route was the one Trump chose to pursue. It should be mentioned there was little visible opposition from leading Democrats in Congress.

But, we could have taken a different route. We could have looked to pool research, not just nationally, but internationally. This would mean that all research findings would be posted on the web as soon as practical, and that any patents would be placed in the public domain so that everyone could take advantage of them.

We were actually seeing this sort of cooperation in the early days of the pandemic, which allowed scientists to gain an understanding of the virus more quickly than if we had followed the path of patent monopoly supported research. This path of cooperation could have continued, if Operation Warp Speed had been structured differently. Instead of paying for the research costs of a company like Moderna, and then telling them they could get a patent monopoly so that they could charge whatever they want, we could have made the condition of the funding that all its findings would be fully public and patents would be in the public domain.

Since some folks have a hard time understanding what incentive Moderna would have if they weren’t getting a patent monopoly, let me explain: they would be getting paid.

Just as most of us work for money, not patent monopolies, Moderna and other drug companies developing vaccines or treatments would be getting paid directly for their research. Their incentive would be that they presumably want to continue to get paid. If they went two or three months and had nothing to show, then they would not continue to get paid.

This is the idea of working for money. I thought that most economists were familiar with it, but when it comes to financing drug research, they seem to view it as an alien concept.[1]

Anyhow, if we committed $10 billion for open research, presumably we would want comparable commitments (adjusted for size and wealth) from other countries. For example, Germany, which has an economy that is roughly one fifth the size of the U.S. economy, would be expected to commit to paying $2 billion to support open research. China would also be expected to make a commitment that was comparable relative to its GDP, although as a much poorer country (on a per person basis), perhaps the commitment would only be half as large relative to its economy.

If we had leadership in the United States that was committed to pursuing a path of open research, then presumably it would be possible to quickly work out a deal that countries were reasonably satisfied with. It doesn’t matter that a deal may not make everyone perfectly happy. Lots of things are happening in the pandemic and the responses are far from perfectly fair. Such is life.

Anyhow, in this world of open research, if it turned out that China’s vaccines were showing more promise earlier than the ones developed by Pfizer and Moderna and other U.S. companies, we would be able to manufacture and mass distribute their vaccines, as soon as the Food and Drug Administration (FDA) approved them. No one would need permission from China since the research was open, and anyone could manufacture the vaccines who had the capability.

Just to be clear, using a Chinese vaccine does not mean accepting China’s safety standards. The FDA would make its own determination of a vaccine’s safety and effectiveness based on the data from the clinical trials. If it could not be confident that the data supported approval, then it would not be granted, just as is the case with any domestic vaccine or drug.

If we had gone this route, if the Chinese vaccines are shown to be safe and effective before the vaccines developed by U.S. companies, we would not be left waiting. If China, or any other country had a vaccine, we would as well. This system still leaves a problem for developing countries who lack manufacturing capabilities, but at least intellectual property concerns would not be preventing people from getting a vaccine or treatment.

 

Open Research and Inequality

It is hard to understand how, not just mainstream Democrats, but even progressive leaders like Senators Bernie Sanders, Elizabeth Warren, and Representative Alexandra Ocasio-Cortez, were not pushing for an open research response to the pandemic. This almost certainly would have given us a vaccine more quickly.

However, an open research approach to the pandemic also could have been a very important model for biomedical research more generally. If we went a route of financing research upfront and putting all patents in the public domain, it could save us $400 billion a year on prescription drug spending. This comes to more than $3,000 per household. It is more than twice the size of the Trump tax cut. This is real money.

Patent monopolies also have a lot to do with inequality. We are often told that technology is a big part of the story of upward redistribution over the last four decades. While this story is frequently exaggerated, insofar as it is true, it is because we have designed patent and copyright laws so that some people can get very rich at the expense of everyone else. Bill Gates would still be working for a living if the government did not give Microsoft patent and copyright monopolies on its software.

It is more than a bit bizarre that political figures who devote so much effort to combatting inequality look the other way when we design a pandemic health care research plan that both slows research progress and gives more money to those at the top.

It’s fine to have progressive taxes, but it is even better to structure the market so that we don’t have so much inequality in the first place. If the minimum wage had kept pace with productivity since its 1968 peak, it would be $24 an hour today. That would be a hugely different world.

While it would be great if we could raise the minimum wage to $24 an hour, we can’t do that without changing many of the rules that allow so much income to be redistributed upward. The current system of patents and copyrights is a really big part of that story. In the case of the pandemic, it is not just leading to inequality, it is also costing people’s health and their lives. Progressives should be paying attention.    

[1] I discuss in chapter 5 of Rigged how this sort of system can be structured in a more systematic way (it’s free). But in the context of dealing with the pandemic emergency, the arrangements would have to be somewhat ad hoc, as is already the case with Operation Warp Speed.

I have been harping on the fact that it is very likely China will be mass producing and distributing a vaccine at least a month, and quite possibly several months, before the United States. This should make people very angry.

Even a month’s delay is likely to mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections. And, it adds a month to the time period before we can get back to living normal lives. Of course, the delay could end up being many months, since we still have no idea how the clinical trials will turn out for the leading U.S. contenders.

We are in the situation where we can be waiting several months for a vaccine, after one has already been demonstrated to be safe and effective, because the Trump administration opted to pursue a route of patent monopoly research, as opposed to open-source collaborative research. If Trump had gone the latter route, as soon as China, or anyone, had a vaccine, everyone would have a vaccine, or at least everyone would be able to manufacture it.

 

Patent Monopoly Financing Versus Open Source

Since people seem to find the alternative to Trump’s patent monopoly approach confusing, let me outline it simply, so that people can see what is at issue. As it turned out, Trump quite explicitly turned the development of a vaccine into a race. He created “Operation Warp Speed,” to which he committed more than $10 billion of public funds. This effort is supposed to develop both vaccines and treatments for the coronavirus.

The funding takes a variety of forms. Several companies received some upfront funding, but are relying primarily on advance purchase agreements for an effective vaccine. For example, Pfizer signed a contract that commits the government to buying 100 million doses for $1.95 billion ($19.50 per shot), if it has a successful vaccine.

By contrast, Moderna relied largely on upfront funding, getting $483 million for its pre-clinical research and phase 1 and 2 trials, and then another $472 million to cover the cost of its phase 3 trials. Incredibly, after largely picking up Moderna’s development costs, the government is also allowing Moderna to have a patent monopoly on its vaccine. This means it will effectively be paying Moderna twice. First with the direct funding and then a second time by allowing it to charge monopoly prices on its vaccine.

This nationalistic patent monopoly route was the one Trump chose to pursue. It should be mentioned there was little visible opposition from leading Democrats in Congress.

But, we could have taken a different route. We could have looked to pool research, not just nationally, but internationally. This would mean that all research findings would be posted on the web as soon as practical, and that any patents would be placed in the public domain so that everyone could take advantage of them.

We were actually seeing this sort of cooperation in the early days of the pandemic, which allowed scientists to gain an understanding of the virus more quickly than if we had followed the path of patent monopoly supported research. This path of cooperation could have continued, if Operation Warp Speed had been structured differently. Instead of paying for the research costs of a company like Moderna, and then telling them they could get a patent monopoly so that they could charge whatever they want, we could have made the condition of the funding that all its findings would be fully public and patents would be in the public domain.

Since some folks have a hard time understanding what incentive Moderna would have if they weren’t getting a patent monopoly, let me explain: they would be getting paid.

Just as most of us work for money, not patent monopolies, Moderna and other drug companies developing vaccines or treatments would be getting paid directly for their research. Their incentive would be that they presumably want to continue to get paid. If they went two or three months and had nothing to show, then they would not continue to get paid.

This is the idea of working for money. I thought that most economists were familiar with it, but when it comes to financing drug research, they seem to view it as an alien concept.[1]

Anyhow, if we committed $10 billion for open research, presumably we would want comparable commitments (adjusted for size and wealth) from other countries. For example, Germany, which has an economy that is roughly one fifth the size of the U.S. economy, would be expected to commit to paying $2 billion to support open research. China would also be expected to make a commitment that was comparable relative to its GDP, although as a much poorer country (on a per person basis), perhaps the commitment would only be half as large relative to its economy.

If we had leadership in the United States that was committed to pursuing a path of open research, then presumably it would be possible to quickly work out a deal that countries were reasonably satisfied with. It doesn’t matter that a deal may not make everyone perfectly happy. Lots of things are happening in the pandemic and the responses are far from perfectly fair. Such is life.

Anyhow, in this world of open research, if it turned out that China’s vaccines were showing more promise earlier than the ones developed by Pfizer and Moderna and other U.S. companies, we would be able to manufacture and mass distribute their vaccines, as soon as the Food and Drug Administration (FDA) approved them. No one would need permission from China since the research was open, and anyone could manufacture the vaccines who had the capability.

Just to be clear, using a Chinese vaccine does not mean accepting China’s safety standards. The FDA would make its own determination of a vaccine’s safety and effectiveness based on the data from the clinical trials. If it could not be confident that the data supported approval, then it would not be granted, just as is the case with any domestic vaccine or drug.

If we had gone this route, if the Chinese vaccines are shown to be safe and effective before the vaccines developed by U.S. companies, we would not be left waiting. If China, or any other country had a vaccine, we would as well. This system still leaves a problem for developing countries who lack manufacturing capabilities, but at least intellectual property concerns would not be preventing people from getting a vaccine or treatment.

 

Open Research and Inequality

It is hard to understand how, not just mainstream Democrats, but even progressive leaders like Senators Bernie Sanders, Elizabeth Warren, and Representative Alexandra Ocasio-Cortez, were not pushing for an open research response to the pandemic. This almost certainly would have given us a vaccine more quickly.

However, an open research approach to the pandemic also could have been a very important model for biomedical research more generally. If we went a route of financing research upfront and putting all patents in the public domain, it could save us $400 billion a year on prescription drug spending. This comes to more than $3,000 per household. It is more than twice the size of the Trump tax cut. This is real money.

Patent monopolies also have a lot to do with inequality. We are often told that technology is a big part of the story of upward redistribution over the last four decades. While this story is frequently exaggerated, insofar as it is true, it is because we have designed patent and copyright laws so that some people can get very rich at the expense of everyone else. Bill Gates would still be working for a living if the government did not give Microsoft patent and copyright monopolies on its software.

It is more than a bit bizarre that political figures who devote so much effort to combatting inequality look the other way when we design a pandemic health care research plan that both slows research progress and gives more money to those at the top.

It’s fine to have progressive taxes, but it is even better to structure the market so that we don’t have so much inequality in the first place. If the minimum wage had kept pace with productivity since its 1968 peak, it would be $24 an hour today. That would be a hugely different world.

While it would be great if we could raise the minimum wage to $24 an hour, we can’t do that without changing many of the rules that allow so much income to be redistributed upward. The current system of patents and copyrights is a really big part of that story. In the case of the pandemic, it is not just leading to inequality, it is also costing people’s health and their lives. Progressives should be paying attention.    

[1] I discuss in chapter 5 of Rigged how this sort of system can be structured in a more systematic way (it’s free). But in the context of dealing with the pandemic emergency, the arrangements would have to be somewhat ad hoc, as is already the case with Operation Warp Speed.

The business press routinely gives us stories of employers complaining about labor shortages. This Reuters piece on struggling auto suppliers is the latest example.

The piece does tell us the suppliers have tried the one proven remedy for labor shortages, higher wages, but the data don’t support the claim. According to the graph in the article, the average hourly wage rose from $26.80 in January of 2019 to $28.20 in August. This amounts to a 5.2 percent increase over one and two-thirds years or a 3.1 percent annual rate. That is almost exactly the economy-wide average for the rate of wage growth in the pre-pandemic period. (It’s lower than the current rate.) In other words, auto suppliers are not raising wages especially rapidly, which is likely the reason they are having trouble getting workers.

The business press routinely gives us stories of employers complaining about labor shortages. This Reuters piece on struggling auto suppliers is the latest example.

The piece does tell us the suppliers have tried the one proven remedy for labor shortages, higher wages, but the data don’t support the claim. According to the graph in the article, the average hourly wage rose from $26.80 in January of 2019 to $28.20 in August. This amounts to a 5.2 percent increase over one and two-thirds years or a 3.1 percent annual rate. That is almost exactly the economy-wide average for the rate of wage growth in the pre-pandemic period. (It’s lower than the current rate.) In other words, auto suppliers are not raising wages especially rapidly, which is likely the reason they are having trouble getting workers.

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